The investment approach where the analyst attempts to identify mispriced securities first and then construct a portfolio based on those securities is known as:

A) the top-down approach
B) the industry approach
C) fundamental analysis
D) the bottom-up approach

Question

The investment approach where the analyst attempts to identify mispriced securities first and then construct a portfolio based on those securities is known as:

A) the top-down approach
B) the industry approach
C) fundamental analysis
D) the bottom-up approach

Quizplus · Accepted Answer

In identifying mispriced securities,analysts typically use either a top-down or bottom-up approach.In the top-down analysis,the analyst starts at the market or macro level,attempting to forecast the movement of the market over the investment horizon.Once general movements are predicted,expected movements at the industry level are considered.Finally,after market and industry analysis is completed,individual security analysis begins.An alternative approach is where the analyst attempts to identify mispriced securities first and then construct a portfolio based on those securities,which is known as the bottom-up analysis.

The Investment Approach Where the Analyst Attempts to Identify Mispriced