NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research
In equity research, a 'top-down' approach to identifying investment ideas begins with which of the following?
A top-down approach starts with macroeconomic analysis, then moves to industry or sector selection, and finally to choosing individual companies. This contrasts with the bottom-up approach, which begins with company-specific fundamentals and works upward.
- AScreening individual companies for low price-to-earnings ratios
- BAnalysing the macroeconomic environment, then industries, then companiesCorrect
- CStudying the management profile of a single company
- DReading the latest quarterly results of a listed firm
Explanation
The top-down approach starts with the economy as a whole, narrows to attractive industries or sectors, and finally picks companies within them. The bottom-up approach is the opposite, starting from company-specific analysis such as screening on ratios or management quality.
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