The SAA weights MPT adopted are best described as primarily reflecting which of the following?
A. The plan's short-term return forecasts for each asset class
B. The plan's long-term investment objectives, risk tolerance, and liability characteristics
C. Current market valuations and price momentum
D. The average allocation held by peer pension funds
Source: CFA Program Curriculum, Level III, "Overview of Asset Allocation" -- Strategic asset allocation defined as policy portfolio weights reflecting the investor's objectives, constraints, and risk tolerance over the long run (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings)
Patel's objection to permitting TAA is best supported by which of the following?
A. TAA is prohibited for pension plans subject to fiduciary oversight
B. SAA weights cannot legally be changed once adopted
C. TAA adds value only if the manager's forecasting skill exceeds the implementation and transaction costs incurred
D. TAA and SAA differ only in how frequently the portfolio is rebalanced
Source: CFA Program Curriculum, Level III, "Overview of Asset Allocation" -- Discussion of tactical asset allocation as a positive-alpha strategy requiring skill that exceeds implementation costs (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings)
The plus or minus 5 percentage-point band with a mandatory 18-month unwind is best characterized as a:
A. Rebalancing corridor rather than a tactical allocation program
B. Constraint that effectively eliminates any tactical positioning
C. Formal risk-budgeting overlay separate from the SAA
D. Governance framework that bounds the magnitude and duration of tactical positions
Source: CFA Program Curriculum, Level III, "Overview of Asset Allocation" -- TAA implementation typically bounded by explicit limits on deviation size and holding period to control governance and cost risk (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings)
Eighteen months after a tactical equity overweight is initiated, the valuation signal that triggered it has not reversed. Under Farrow's proposed policy, the committee should:
A. Automatically extend the tactical position until the signal reverses
B. Close the tactical position and return equity exposure to the SAA weight regardless of the current signal
C. Increase the size of the tactical position
D. Convert the tactical position into a new strategic weight without conducting a new asset-liability study
Source: CFA Program Curriculum, Level III, "Overview of Asset Allocation" -- Time-bound TAA policies require unwinding positions at the stated horizon irrespective of whether the signal has reversed (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings)
The corner solutions produced by Chen's unconstrained optimizer most likely arise because:
A. Mean-variance optimization always converges to single-asset portfolios
B. Unconstrained MVO output is highly sensitive to small estimation errors in the expected return inputs
C. The correlation between equities and bonds was entered with the wrong sign
D. Ten years of monthly data is an insufficient sample size to compute any statistic
Source: CFA Program Curriculum, Level III, "Overview of Asset Allocation" -- Discussion of MVO's sensitivity to expected return estimates and the tendency to produce concentrated, unintuitive corner portfolios (https://www.cfainstitute.org/en/membership/professional-development/refresher-readings)
