easy · Frm Part 2 Risk & Investment Management
In the context of the 'bias stack', why does 'stale marking' lead to an underestimation of drawdowns?
- Because the 'denominator effect' forces managers to write up values during crashes.
- Because appraisal values are anchored to previous marks and do not reflect the full magnitude of market troughs.
- Because most illiquid assets have zero correlation with the global economy.
- Because drawdowns are by definition only possible in liquid, market-traded instruments.
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