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A global equity manager is assigned to select stocks from a universe of large stocks throughout the world. The manager will be evaluated by comparing her returns to the return on the MSCI World Market Portfolio, but she is free to hold stocks from various countries in whatever proportions she finds desirable. Results for a given month are contained in the following table:
Country Weight In MSCI Index Manager's Weight Manager's Return in Country Return of Stock Index for That Country
U.K. 0.21 0.42 21% 12%
Japan 0.34 0.2 14 14
U.S. 0.39 0.3 10 12
Germany 0.06 0.08 5 12
a. Calculate the total value-added of all the manager's decisions this period.
b. Calculate the value-added (or subtracted) by her country allocation decisions.
c. Calculate the value-added from her stock selection ability within countries.

Respuesta :

An investment manager's capacity for value-added decision making is referred to as alpha in the investing community. It reflects the incremental return above a benchmark performance target that they are able to achieve.

For what reason is Alpha called Alpha?

The first letter of the Greek alphabet is the source of the word "Alpha," which refers to the beginning or starting point of a journey.

Part A: The Manager's Return is 0.42 x.21 x.20 x.14 x.30 x.10 x.08 x.05; the MSCI Return is 0.12 x.21 x.12 x.34 x.14 x.39 x.12 x.06 x.12 x 12.68 x 12.68 x Therefore, the Manager's Value-Added

Part b: Country Allocation Value-added Return = (.42 -.21) *.12 + (.2 -.34) *.14 + (.30 -.39) *.12 + (.08 -.06) *.12) = 0.0040, or 0.40 percent.

Part c: Stock Selection Value-added Return = (.21 -.12) *.21 + (.14 -.14) *.34 +.

To learn more about alpha here

https://brainly.com/question/29425402

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