(III) Mean-Variance efficient portfolio construction depends on the unknown expected return and return covariance matrix. When one uses estimated expected return and estimated return covariance matrix, many issues and cautions needs to be considered. Analyze the returns of Canada and Denmark assets in dataset conret4.csv and answer the following questions.
1. Obtain the 95% confidence interval of the correlation coefficient between the returns of Canada and Denmark (columns 6 and 7), based on Fisher transformation. Comment on the result.
2. Obtain the optimal weight for an efficient portfolio with only two assets, Canada and Denmark,with target monthly return of 1.2% and allowing short selling and with a riskless asset with 0.1% monthly interest rate. Report the optimal weight and the corresponding portfolio risk, under the following three covariance estimates:
(a) the estimated covariance matrix
(b) use the estimated variance of each country, but for the correlation coefficient, use the lower limit of the confidence interval you obtained in (III.1). [Hint: you need to construct the covariance matrix accordingly].
(c) use the estimated variance of each country, but for the correlation coefficient, use the upper limit of the confidence interval you obtained in (III.1).
3. Comment on the result you have obtained in (III.2).
4. In (III.2.a), what would be the optimal weight if the target return is set at (the greedy and reckless) 12% (per month), instead of 1.2%. Compare it with what you get in (III.2.a) and comment.
- 匿名使用者8 年前最佳解答
I know who you are, Mr. Zhang. It's a shame to ask for answers from others for
your individual homework. You will get a penalty.
- 匿名使用者6 年前