Discuss the difference between the top-down and bottom-up approaches.
What is the major assumption that causes the difference in these two approaches?
This is the process of evaluating the allocation of financial assets and how best these allocations fit the investors? needs. There are two considerations when analyzing growth rate and risk. Therefore the investors must make sure to choose a level of risk that they can tolerate.
Answer and Explanation:
The top-down focus investment approach focuses on how markets and stock prices are guided by the overall economy and the macroeconomic impact while the bottom up the investor chooses a company due to its financial position and not the general economy or industry
The assumption made is that even when the industry is not performing the companies can perform
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Learn more about this topic:
from Finance 305: Risk ManagementChapter 3 / Lesson 3