Chapter 9: Extensions of Risk and Return Concepts

In this section

• Multi-Factor Models and Portfolio Return Drivers
  Multi-Factor Models and Portfolio Return Drivers (CFA Level 1): Key Concepts in Multi-Factor Models, Why Multi-Factor Models?, and Factor Families. Key definitions, formulas, and exam tips.
• Evaluating Downside Risk Measures
  Evaluating Downside Risk Measures (CFA Level 1): Traditional vs. Downside Risk Metrics, Key Downside Risk Measures, and Semi-Variance. Key definitions, formulas, and exam tips.
• Non-Linearity and Tail Risk
  Non-Linearity and Tail Risk (CFA Level 1): Understanding Non-Linearity in Risk Profiles, Impact on Return Distributions: Skewness and Kurtosis, and Non-Linearity from Derivatives and Structured Products. Key definitions, formulas, and exam tips.
• Portfolio Efficiency Metrics Beyond Traditional Mean–Variance
  Portfolio Efficiency Metrics Beyond Traditional Mean–Variance (CFA Level 1): Rationale for Alternative Efficiency Metrics, Key Non-Mean–Variance Metrics, and Sortino Ratio. Key definitions, formulas, and exam tips.
• Return-Based Style Analysis
  Return-Based Style Analysis (CFA Level 1): Key Concepts and Foundation, What Is Return-Based Style Analysis?, and Style Factors and Style Drift. Key definitions, formulas, and exam tips.
• Factor Tilts and Style Rotation
  Factor Tilts and Style Rotation (CFA Level 1): What Is a Factor Tilt?, Why Managers Use Factor Tilts, and Strategic vs. Tactical Tilts. Key definitions, formulas, and exam tips.
• Multi-Factor Model Construction and Validation
  Multi-Factor Model Construction and Validation (CFA Level 1): Key Concepts in Multi-Factor Modeling, Factor Identification and Data Collection, and Data Assembly. Key definitions, formulas, and exam tips.
• Conditional Factor Exposures in Changing Market Regimes
  Conditional Factor Exposures in Changing Market Regimes (CFA Level 1): Why Market Regimes Matter, Common Examples of Regime-Dependent Factor Behavior, and Identifying Different Market Regimes. Key definitions, formulas, and exam tips.
• Incorporating Transaction Costs in Multi-Factor Strategies
  Incorporating Transaction Costs in Multi-Factor Strategies (CFA Level 1): Types of Transaction Costs, Explicit vs. Implicit Costs, and Impact of Transaction Costs in Multi-Factor Strategies. Key definitions, formulas, and exam tips.
• Estimating Marginal Contributions to Risk
  Estimating Marginal Contributions to Risk (CFA Level 1): Understanding the Concept, Why MCTR Matters in Portfolio Construction, and Laying Out the Math. Key definitions, formulas, and exam tips.
• Reversals and Momentum in Factor Portfolios
  Reversals and Momentum in Factor Portfolios (CFA Level 1): Short-Term Reversals vs. Longer-Term Momentum, Behavioral and Structural Underpinnings, and Anatomy of a Momentum Strategy. Key definitions, formulas, and exam tips.
• Regime Switching and Machine Learning in Factor Allocation
  Regime Switching and Machine Learning in Factor Allocation (CFA Level 1): Understanding Regime-Switching Models, Basics of the Regime Concept, and Why It Matters for Factor Allocation. Key definitions, formulas, and exam tips.
• Alternative Factor Definitions and Data Sources
  Alternative Factor Definitions and Data Sources (CFA Level 1): Evolution of Factor Definitions, Alternative Data in a Nutshell, and Technological Developments Leading to New Factor Definitions. Key definitions, formulas, and exam tips.
• Shifts Between High Beta and Defensive Factors
  Shifts Between High Beta and Defensive Factors (CFA Level 1): Friendly Dive into High Beta vs. Defensive, Understanding the High-Beta Factor, and Why Bet on High Beta?. Key definitions, formulas, and exam tips.
• Factor Interaction Effects in Portfolio Management
  Factor Interaction Effects in Portfolio Management (CFA Level 1): Understanding Factor Overlap and Interactions and Correlation Analysis Among Factors. Key definitions, formulas, and exam tips.
• Practical Limitations of Factor Approaches
  Practical Limitations of Factor Approaches (CFA Level 1): Overfitting and Data Mining Dangers, Why Overfitting Happens, and Mathematical Lens. Key definitions, formulas, and exam tips.