Dimensional Fund Advisors Case Analysis Essay - 1337 Words

1) DFA’s investment strategy is based on their belief in the principle that stock market is efficient. They attempt to match a broad-based, value-weighted small-stock index and position themselves in the market as a passive fund manager that still claimed to add value by capturing specific dimensions of risks identified by financial science. DFA’s investment strategy incorporates elements of both passive and active management. It is passive in the sense that like many other index managers, it focuses on the importance of diversification, lower turnover and lower fees than actively managed portfolios. It is active in the sense that it develops its small-value stock focus based on academic research and uses certain techniques (such as†¦show more content†¦DFA’s trading strategy such as avoiding stocks if news announcements are coming in the near future or if stock has recently reported sales by insiders reflect a belief that stock prices can potentiall y not reflect all private information. DFA also does not accept the weak-form efficient because if stock prices only reflect all information in past prices, they would see the value of performance fundamental analysis of the firm they are looking at (but the case indicates that DFA does not performance fundamental analysis). 4) Fama and French’s three factor model attempts to explain the variation of stock prices through a multifactor model that includes a size factor and BE/ME factor in addition to the beta risk factor. Fama-French model essentially extended the CAPM (which breaks up cause of variation of stock price into systematic risk which is non-diversifiable and idiosyncratic risk which is diversifiable) by introducing these two additional factors. Fama and French find that stocks with high beta didn’t have consistently higher returns than stocks with low beta and this indicates that beta was not a useful measure under their model. Their model is based on research findings that sensitivity of movements of the size and BE/ME factor constituted risk, andShow MoreRelatedDfa Case Study7650 Words   |  31 Pages9-203-026 REV: JANUARY 28, 2003 RANDOLPH B. COHEN Dimensional Fund Advisors, 2002 In June of 2002, David Booth faced a dilemma. His firm, Dimensional Fund Advisors (DFA), had in recent times shown stellar performance after going through some relatively rough patches in the late 1990s. Growth was steady and profits strong. Yet, Pensions and Investments ranked DFA a mere th 96 in size among investment companies (see Exhibit 1). While DFA had never viewed maximizing assets under management asRead MoreDimensional Fund Advisors, 2002 Essay1836 Words   |  8 PagesDimensional Fund Advisors, 2002 1. What is DFA’s business strategy? What do you think of the firm? Are the DFA people really believe in efficient markets? Dimensional Fund Advisors (DFA) primarily focuses on the investment of small stock funds. DFA’s business strategies are as following: * DFA was dedicated to the principle that the stock market was efficient. * DFA believes the value of sound academic research. * DFA believes the ability of skilled traders to contribute to a fund’sRead MoreInvestment and Burgundy Asset Management916 Words   |  4 PagesFIN 6310 Case Studies Purchase Case Studies (4) †¢ Ivey Case Studies (2) o You will need to create an account at http://cases.ivey.uwo.ca o Then search for and put the following two cases in your cart. 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