Description of Free Float

CFA Level III
#1

Were both correct? I wasn’t sure about the statement for institutional investors, but at the top of the next page there appeared to be a clue (CFAI does this sometimes) --> The client asked why institutional investors do not use the non-free float indices?

#2

I think they were both true

#3

The first statement is wrong “something like institution thinks it is more efficient” The second statement is correct.

#4

First statement was “Institutional investors want to reduce tracking error.”

#5

only one true

#6

Yeah, I said only the second was true. You can’t jump to the implication that all institutional investors want to reduce tracking error. How do you know what their management mandate is??

#7

I *think* I put both statements were correct. However I don’t remember what the statements were. I believe reducing free float would reduce tracking error yes? Second statement was what?

#8

Institutional investors don’t like investing in market cap indexes because of tracking risk Second was that adjusted for float are more investable or something like that I still think both were true

#9

both were correct. Under the quality of benchmarks you want to reduce tracking error…it’s a preferred characteristics of a benchmark. You wouldn’t benchmark to it unless you were matching it.

#10

The second statement was definitely a correct description of free float index being weighted to match available trading shares. The first point was questionable, but as I pointed out, there was a reference to institutional investor’s dislike of non free float indices, which lead me to believe the description in statement 1 was correct as well.

#11

on p. 337 v.4, in the section relevantly titled “Need for Float Adjustment”, it mentions managers attempting to minimize tracking error, which, when viewed in isolation, is always a good thing. Further, institutional investors are generally highly risk averse, vis-a-vis most individuals.

#12

eastcoaster9 Wrote: ------------------------------------------------------- > on p. 337 v.4, in the section relevantly titled > “Need for Float Adjustment”, it mentions managers > wanting to minimize tracking error, which, when > viewed in isolation, is always a good thing. Thank you. I’ll assume both statements were correct.

#13

bosjcm Wrote: ------------------------------------------------------- > eastcoaster9 Wrote: > -------------------------------------------------- > ----- > > on p. 337 v.4, in the section relevantly titled > > “Need for Float Adjustment”, it mentions > managers > > wanting to minimize tracking error, which, when > > viewed in isolation, is always a good thing. > > > Thank you. I’ll assume both statements were > correct. I think that’s a safe assumption. I could’ve gone either way here…

#14

i said first was incorrect (went back and forth on this) institutional investors are not trying to minimize tracking error as they want style bias/misfit return.

#15

Move on to another one: Why there are fewer institutional investors on THAT index?

#16

breadth issues -1350 stocks for the whole of europe?..sounds less to me

#17

I thought it’s investability - because closely-held stocks you can’t buy much.

#18

The first benchmark had a ton of additions and subtractions relative to others, I thought that was impt to getting the right anwser

#19

only one true…tracking error is not reduced…

#20

I don’t think you worded the first question correctly, I think it is false, true