Hi Forum,
A manager whose relative performance is worse during market downturns most likely has a capture ratio that is: A less than one. B equal to one. C greater than one.
THe answer is: less than one, because downside capture is greater than upside capture.
I would say this question is INCOMPLETE. Underperforming during a market downturn (=falling more than the benchmark) means you have a downside capture greater than 1 (or 100%).
However, in order to asess the capture ratio, you need to know how the manager performs in the upside scenario as well.
What do you think?
Thanks!
RELATIVE PERFORMANCE. Any qs.?
Yes, my question is: how can you know how the upside capture is? Downside capture is clear, higher than one.
E.g. In an upturn, you outperform the market, upside capture larger than one AND higher than the downside capture. So the RATIO can be larger than one in this case…
The question indirectly is implying no change in upside. As in assume all else unchanged, how would your capture ratio be impacted with only a change in downside capture and no change in upside capture.
Yes, my point exactly, thank you. I hope the exam will formulate it in a more clear way.