Lag the VIX values by five days and try using the lagged VIX values to predict....

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Lag the VIX values by five days and try using the lagged VIX values to predict. returns to any two stocks you chose. What does it tell you about how the risk of these stocks changes in good and bad days (ignore statistical significance for now)? Does this behavior of risk make you feel like the stocks are riskier or less risky than you thought? (20 points) vi. Calculate the change in VIX (a simple change will do, no need to make it percentage change). Regress the returns to any two stocks you chose on the market factor and the change in VIX. What does this regression tell you about how the risk of your stocks compares to what the static CAPM would say about it (ignore statistical significance for now)? Does the sign of the slope on VIX agree with (v)? (25 points) vii. Why you can or cannot interpret the intercept of the regressions from (vi) as an abnormal return to a trading strategy? (5 points) viii. (Bonus question): Create a portfolio tracking the change in VIX using your five firms. Report the sums you need to invest in each firm to mimic VIX. Do the loadings from the factor-mimicking regression coincide with what you would expect given the results in (vi)? Does the R-square of the factor-mimicking regression and the average return to the factor-mimicking portfolio you produced suggest that the factor-mimicking was successful? (20 points) Lag the VIX values by five days and try using the lagged VIX values to predict. returns to any two stocks you chose. What does it tell you about how the risk of these stocks changes in good and bad days (ignore statistical significance for now)? Does this behavior of risk make you feel like the stocks are riskier or less risky than you thought? (20 points) vi. Calculate the change in VIX (a simple change will do, no need to make it percentage change). Regress the returns to any two stocks you chose on the market factor and the change in VIX. What does this regression tell you about how the risk of your stocks compares to what the static CAPM would say about it (ignore statistical significance for now)? Does the sign of the slope on VIX agree with (v)? (25 points) vii. Why you can or cannot interpret the intercept of the regressions from (vi) as an abnormal return to a trading strategy? (5 points) viii. (Bonus question): Create a portfolio tracking the change in VIX using your five firms. Report the sums you need to invest in each firm to mimic VIX. Do the loadings from the factor-mimicking regression coincide with what you would expect given the results in (vi)? Does the R-square of the factor-mimicking regression and the average return to the factor-mimicking portfolio you produced suggest that the factor-mimicking was successful? (20 points)

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v Lagged VIX values can be used to predict returns to stocks In general stocks tend to have lower re... View the full answer