Andrew Ang, Asset Management: A Systematic Approach to Factor Investing Study Notes contain 53 pages covering the following learning objectives:

Chapter 6: Factor Theory

Provide examples of factors that impact asset prices, and explain the theory of factor risk premiums.

Describe the capital asset pricing model (CAPM) including its assumptions, and explain how factor risk is addressed in the CAPM.

Explain implications of using the CAPM to value assets, including equilibrium and optimal holdings, exposure to factor risk, its treatment of diversification benefits, and shortcomings of the CAPM.

Describe multifactor models, and compare and contrast multifactor models to the CAPM.

Explain how stochastic discount factors are created and apply them in the valuation of assets.

Describe efficient market theory and explain how markets can be inefficient.

Chapter 7: Factors

Describe the process of value investing, and explain reasons why a value premium may exist.

Explain how different macroeconomic risk factors, including economic growth, inflation, and volatility affect risk premiums and

asset returns.

Assess methods of mitigating volatility risk in a portfolio, and describe challenges that arise when managing volatility risk.

Explain how dynamic risk factors can be used in a multifactor model of asset returns, using the Fama-French model as an example.

Compare value and momentum investment strategies, including their risk and return profiles.

Chapter 10: Alpha (and the Low-Risk Anomaly)

Describe and evaluate the low-risk anomaly of asset returns.

Define and calculate alpha, tracking error, the information ratio, and the Sharpe ratio.

Explain the impact of benchmark choice on alpha, and describe characteristics of an effective benchmark to measure alpha.

Describe Grinold’s fundamental law of active management, including its assumptions and limitations, and calculate the information ratio using this law.

Apply a factor regression to construct a benchmark with multiple factors, measure a portfolio’s sensitivity to those factors and measure alpha against that benchmark.

Explain how to measure time-varying factor exposures and their use in style analysis.

Describe issues that arise when measuring alphas for nonlinear strategies.

Compare the volatility anomaly and beta anomaly, and analyze evidence of each anomaly.

Describe potential explanations for the risk anomaly.

After reviewing the notes you will be able to apply what you learned with practice questions.

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