Alternative Eoc # 26

CFA Level III Portfolio Management
#1

I am a little confused about this q:

“What are the return-distribution characteristics associated with alternative investment strategies that reduce downside risk”?

and the answer choices are:

Which of the following is the most appropriate response to Howard’s question?

  1. Positive skewness and low kurtosis.
  2. Positive skewness and high kurtosis.
  3. Negative skewness and high kurtosi

i picked c because these are the characteristics of alternative investments isn’t it?

#2

Yes. Most alternative investments have negative skewness and high kurtosis as characteristics. But they also have poor performance, high risk and therefore wont be preferred by a rational investor. Rational investor prefers alternative investments, which are rare to find and are those with positive skewness and low kurtosis, and therefore display excess returns relative to risk.