Lazare and Warrack make the following comments about Active Share and active risk in the context of a single-factor model:
The level of active risk will rise with an increase in idiosyncratic volatility.
The active risk attributed to Active Share will be smaller in more diversified portfolios.
If the factor exposure is fully neutralized, the Active Share will be entirely attributed to the active risk.
Q. In Lazare and Warrack’s comments about Active Share and active risk, the comment that is leastaccurate is the one concerning:
- portfolio diversification.
- neutralizing factor exposure.
- increasing idiosyncratic volatility.
Solution
B is correct. The comment concerning neutralizing factor exposure is incorrect: In a single-factor model, if the factor exposure is neutralized, the active risk will be entirely attributable to the Active Share—a consequence of the manager deviating from benchmark weights. The active risk attributed to Active Share will be smaller for more diversified portfolios with lower idiosyncratic risk. Active risk does rise with an increase in factor and idiosyncratic volatility.
A is incorrect because the active risk attributed to Active Share will be smaller for more diversified portfolios with lower idiosyncratic risk.
C is incorrect because active risk does rise with an increase in factor and idiosyncratic volatility.
这个知识点完全没印象，可否三个选项都解释一下
