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All posts by Bill Campbell III, CFA

Absolute Advantage Absolute advantage is quite easy to understand: if it costs less in country A to make a product than it costs in country B, then country A has an absolute advantage over country B in the production of that product. Easy-peasy. Comparative Advantage Comparative advantage is a bit more complicated.  It depends not […]

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No discussion of conservative methods vs. aggressive methods would be complete without a clear definition of what we mean by these two categories of methods.  Therefore, let’s start there: Conservative accounting methods are those that report lower net income in the current period, and (potentially) higher net income in future periods. Aggressive accounting methods are […]

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CFA® Level I Membership, CFA® Level II Membership

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Various interest rate derivatives are, in fact, equivalent to each other; i.e., they can be structured to generate equivalent (though not necessarily identical) cash flows.  This article will explain how these derivatives can be structured to be equivalent to each other. First note that you will not be asked on an exam to create equivalent […]

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CFA® Level I Membership, CFA® Level II Membership

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This article’s going to turn out to be fairly short, but, I hope, quite useful.  It has pictures. Floating-Rate Inflow: Rates are Expected to Decrease Here’s the situation: you own a portfolio of investments (floating-rate bonds) paying 6-month USD LIBOR + 100bp; payments are every 6 months for the next three years.  You’re concerned that interest […]

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CFA® Level I Membership

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When I was an undergraduate student in university, I was fortunate enough to have to have written only two term papers.  One was in the capstone business management class I took my last semester, and the other was in a class in mathematical modeling.  The term paper I wrote for the latter class was on […]

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CFA® Level I Membership

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When the price of a good changes, there are two effects on the demand for that good: The substitution effect, which is a relative effect (i.e., how the demand for that good, by itself, changes relative to the demand for other goods) The income effect, which is an absolute effect (i.e., how the demand for […]

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CFA® Level I Membership

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A few years ago CFA Institute added a new reading on tax regimes to the Level III curriculum, and it caused quite a stir: apparently they had a large question about taxes on that first year’s Level III exam, and few candidates were prepared for it. I want you to be prepared for it. And […]

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CFA® Level III Membership

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I was recently writing a comparison of indices and benchmarks, and it occurred to me that an article on benchmarks might be useful, so here it is.  This is an easy one. The main points of interest to Level III CFA candidates are: How are benchmarks used? What characteristics should a benchmark have? What are […]

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CFA® Level III Membership

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If you were to ask (a random sample of) 100 financial advisors what the term “rebalance” means, I wouldn’t be surprised if 95 of them described it as “returning the portfolio to its original weights in each asset class”, or something tantamount to that. In other words, the investing world overwhelmingly equates rebalancing with a […]

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CFA® Level III Membership

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Here’s a list of the articles I have planned for Level III, but haven’t written and posted yet.  There’s some good stuff coming:

  1. Alpha/beta separation
  2. Analyst forecasts
  3. AO vs. ALM
  4. Arbitrage-free commodity forward price
  5. Asset Managers’ Code
  6. Behavioral factors
  7. Bounded rationality
  8. Cognitive errors
  9. Comparison of investor types
  10. Constraints
  11. Core-satellite portfolio
  12. Credit risk
  13. Currency hedging
  14. Currency risk
  15. Decision theory
  16. Efficient frontier vs. resampled efficient frontier vs. Black-Litterman vs. Monte Carlo
  17. Emotional biases
  18. Equitizing cash
  19. Equity return attribution
  20. Fixed income return attribution
  21. GIPS®
  22. Global attribution
  23. Leverage
  24. Market-neutral (long-short) investing
  25. Micro attribution
  26. Option strategies
    1. Short box spread
    2. Short butterfly spread
    3. Short straddle
    4. Short strangle
  27. Pension plan impacts
  28. Portable alpha
  29. Prospect theory
  30. Replication vs. sampling vs. optimization
  31. Returns-based style analysis vs. holdings-based style analysis
  32. Risk & return
  33. SAA vs. TAA
  34. Short extension
  35. Swap strategies
  36. Taylor rule
  37. Trading strategies
  38. TWAP
  39. VaR
  40. VWAP