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Innovations in Investment Technology: Artificial Intelligence Week 01 Quiz Answers
Quiz : Case Discussion Participation
Q1. I certify that I participated in the case discussion and that my own original thinking is shown in my discussion post(s).
- Yes, I participated in the case discussion for this lesson.
- No, I did not participate in the case discussion for this lesson.
End of Module Quiz
Q1. You are 25 years old and just starting to invest. A friend states that you should invest all of your money in equities and ignore other asset classes. Do you agree with this advice?
- Yes. Equities have higher average returns than other asset classes
- No. This advice ignores the benefits of diversification between asset classes
- It depends on your risk tolerance
- No. Equities are the riskiest investment
Q2. In assessing your optimal portfolio position, an advisor uses a utility function given by
U = E[R] – 0.5 * A * Var(R)
where A represents your risk aversion. This means that lower levels of A indicate more risk tolerance. Who will invest more in equity than bonds as an asset class, an investor with A=1 or an investor with A=10?
- An investor with A=10
- They will choose the same allocation
- An investor with A=1
- The investor with A=10 will choose 0% equity allocation and the investor with A=1 will choose 100% equity allocation
Q3. Which of the following statements about robo-advisors are true?
- Traditional advisors provide more personal interaction and guidance than robo-advisors
- They charge lower fees than traditional advisors
- They generally invest in passive investment vehicles such as ETFs
- All of the above
Q4. How are the weights of each stock in the S&P 500 index determined?
- Weights are randomly assigned to the stocks in the index
- Each stock is value-weighted, meaning that its weight is its market value, divided by the total market value of all 500 stocks in the index
- Each stock is equally weighted, meaning that its weight is one divided by the number of stocks in the index (500)
- The S&P 500 index weights are mean-variance efficient weights
Q5. Why is it difficult to hold an index directly?
- It is difficult to hold a portfolio of shares of individual stocks in the index in the correct proportions
- Some stocks are too difficult to buy from the brokers and the market because shares are hard to find
- You would have to rebalance your portfolio too frequently
- Some stocks in the index are too expensive
Q6. The creator of an ETF is called the __________
- Authorized Participant
- Creation Unit
- ETF Trust
- Broker of Record
Q7. Stock A has a price of $5 and Stock B has a price of $10. If there are 200 shares outstanding of Stock A and 100 shares outstanding of Stock B, what are the value weights of an index of the two stocks?
- Stock A: 67%, Stock B: 33%
- Stock A: 33%, Stock B: 67%
- Stock A: 50%, Stock B: 50%
- I don’t have enough information to answer this question
Q8. Stock A has a price of $5 and Stock B has a price of $10. An index has value weights in Stock A of 60% and in Stock B of 40%. If an authorized participant has 60 shares of stock A and 20 shares of stock B, at what price will she sell a value-weighted index ETF of these stocks if she wants to sell 200 shares?
- $1.00
- $2.50
- $10.00
- $5.00
Q9. The expected return on stocks is about 11%. Which of the following statements about this claim is closest to being accurate?
- On average, stocks have returned 11% per year. However, sometimes the expected return is higher, and sometimes the expected return is lower.
- The average return on stocks is 11%. Therefore, the expected return on stocks is 11%.
- The expected return on stocks is lower than 11%
- The expected return on stocks is higher than 11%.
Q10. Which of the following measures is responsible for the diversification benefits of holding a portfolio rather than a single asset?
- Correlation
- Expected return
- Standard deviation
- All of the above
Innovations in Investment Technology: Artificial Intelligence Week 02 Quiz Answers
Quiz : Case Discussion Participation
Q1. I certify that I participated in the case discussion and that my own original thinking is shown in my discussion post(s).
- Yes, I participated in the case discussion for this lesson.
- No, I did not participate in the case discussion for this lesson.
End of Module Quiz
Q1. In the benchmark model,
R_{p,t} – R_{f,t} = α_{p} + β_{p}(R_{m,t} – R_{f,t} ) + ε_{p,t}Rp,t−Rf,t=αp+βp(Rm,t−Rf,t)+εp,t
which of the following best describes the meaning of α_{p}αp?
- The average return not explained by the benchmark
- The exposure of the portfolio return to the benchmark
- Deviations in returns on the portfolio from the benchmark
- All of the above
Q2. Which of the following is NOT a reason that we assess active managers’ performance against a benchmark?
- We can invest in a benchmark at low cost
- Investing in a benchmark does not require the skills of an active manager
- It is easy to buy exposure (beta) to a benchmark
- Active managers invest in the benchmark
Q3. In the benchmark model,
R_{p,t} – R_{f,t} = α_{p} + β_{p}(R_{m,t} – R_{f,t}) + ε_{p,t}Rp,t−Rf,t=αp+βp(Rm,t−Rf,t)+εp,t
which of the following captures managers’ skill at choosing stocks
- α_{p}αp
- R_{m,t}Rm,t
- β_{p}βp
- ε_{p,t}εp,t
Q4. Most active managers’ approach to selecting stocks is called:
- Discounting
- Technical analysis
- Market timing
- Fundamental analysis
Q5. Which of the following statements about screening are true?
- Screening uses publicly available information about a firm to select stocks expected to perform well relative to other stocks
- Screening requires extensive security analysis via fundamental information to identify strong performing stocks
- Screening relies on insider information to determine which stocks are going to perform relatively well
- None of the above
Q6. Which of the following statements about issues in a screening approach is true?
- Screening can be a risky investing approach
- Signals do not always deliver the same strength of performance
- Correlation among signals can reduce data density for multiple signals
- All of the above
Q7. Which of the following is NOT a signal discussed in the videos?
- High accruals
- High operating profitability
- Low market capitalization
- High ratio of book value to market value
Q8. A pure smart beta momentum index will hold
- Stocks in an underlying index with strong past returns, but not stocks with poor past returns
- Stocks in an underlying index with poor past returns and not those with strong past returns
- All stocks in the universe of stocks with strong past returns
- Stocks in an underlying index that overweights stocks with strong past returns and underweights those with poor past returns
Q9. A smart beta momentum tilt index will hold:
- Stocks in an underlying index with poor past returns and not those with strong past returns
- All stocks in the universe of stocks with strong past returns
- Stocks in an underlying index with strong past returns, but not stocks with poor past returns
- Stocks in an underlying index that overweights stocks with strong past returns and underweights those with poor past returns
Innovations in Investment Technology: Artificial Intelligence Week 03 Quiz Answers
Quiz : Case Discussion Participation
Q1. I certify that I participated in the case discussion and that my own original thinking is shown in my discussion post(s).
- Yes, I participated in the case discussion for this lesson.
- No, I did not participate in the case discussion for this lesson.
End of Module Quiz
Q1. You have a choice between investing with three asset managers with different expected returns. You will invest $10,000 with one of them for 30 years.
- An investment with an 8% expected return and a 1% per annum management fee
- An investment with a 5% expected return and a 0.25% management fee
- An investment with a 12% expected return and a 2% management fee
Which investment is the best choice?
- I don’t have enough information to answer the question
- An investment with an 8% expected return and a 1% per annum management fee
- An investment with a 5% expected return and a 0.25% management fee
- An investment with a 12% expected return and a 2% management fee
Q2. Situation: Suppose you are evaluating a new strategy from a quant trading analyst, who claims to have discovered a new high-frequency equity arbitrage opportunity uncovered using multi-tiered recursive neural networks (RNN).
Reflecting on what we have learned from ML/AI in investments, what should be your first question?
- How many hidden layers does the network have?
- What is the in-sample performance?
- What data went into the model?
Q3. Situation: Suppose you are evaluating a new strategy from a quant trading analyst, who claims to have discovered a new high-frequency equity arbitrage opportunity uncovered using multi-tiered recursive neural networks (RNN).
Now, suppose you found that the strategy is actually [investing in all stocks with tickers starting with the letter “N”, “E”, “U”, “R”, “A”, “L”]. Yet, between 1993 and 2020, the average annualized return of this strategy is actually 8.5% higher than the market. What are your key takeaways from this scenario? Please select all that apply.
- Equity-based investment strategies should be thoroughly back-tested on all asset classes
- It’s important to use both market- and characteristics-adjusted returns in performance evaluation
- Data analytics—advanced or not—could uncover spurious instead of meaningful relations
- If you change the sample period by a little bit, the results might not hold
Q4. Which of the following statements is NOT true about big data & machine learning/AI?
- Deep learning can either be supervised or unsupervised
- In deep learning models, all model choices and parameters are directly estimated from the data rather than supplied by the user
- Machine learning tools can be used to reduce high dimensionalities from unstructured, textual data
- Unstructured data can also be small
Q5. Which of the following factors is the most critical in determining the accuracy of supervised machine learning models?
- Whether the model is linear or nonlinear
- Relative size between training and test datasets
- Number of free model parameters
- Quality of the training data
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Innovations in Investment Technology: Artificial Intelligence Quiz Answers
