Application of Multi-Factor Models in Risk Management Suppose you are the manager of the fund of...
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Application of Multi-Factor Models in Risk Management Suppose you are the manager of the fund of domestic equity funds. - You have no stock picking ability - You do have factor forecasting/timing ability - Your benchmark is Russell 3000 Index You believe the following four-factor model holds: ri,t-rt = a₁ +bRMRE, FRMRF,t+bTS,FTS,t+bys, Fys,t + boli Fol,t + E₁,t Consider investing in 6 portfolios: S/L,S/M,S/H,B/L,B/M,B/H. Suppose you want to minimize your total portfolio variance and target at least 12% per year in expected returns, but 1. You would not take oil-price risk. 2. You would like your portfolio to move 1-to-1 with the market. How do you construct such a portfolio? Hsiu-long Chen Portfolio Analysis Application of Multi-Factor Models in Risk Management Suppose you are the manager of the fund of domestic equity funds. - You have no stock picking ability - You do have factor forecasting/timing ability - Your benchmark is Russell 3000 Index You believe the following four-factor model holds: ri,t-rt = a₁ +bRMRE, FRMRF,t+bTS,FTS,t+bys, Fys,t + boli Fol,t + E₁,t Consider investing in 6 portfolios: S/L,S/M,S/H,B/L,B/M,B/H. Suppose you want to minimize your total portfolio variance and target at least 12% per year in expected returns, but 1. You would not take oil-price risk. 2. You would like your portfolio to move 1-to-1 with the market. How do you construct such a portfolio? Hsiu-long Chen Portfolio Analysis
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The first step is to determine the desired exposures to the four factors Since you do not want ... View the full answer
Related Book For
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
Posted Date:
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