#titleAssignment Help.., Financial Econometrics

Assignment Help:
Question I: (50 points)
Derive the pricing formula for the expected excess return of a risky stock and the riskfree stock in the traditional consumption-CAPM assuming that the level of habit Ht depends on the time t-1 agent’s and the society consumption levels (Ct?1 and Ct?1), that is:
H =C?1 C?2
t t?1 t?1
were ?1 and ?2 are elasticities of Ht with respect to Ct?1 and Ct?1 (constant parameters).

---

In a market where the CAPM holds there are five risky assets with the following attributes per year.
Asset 12345 Expected return 5% 3% ?1% 6% 0% Market capitalisation (in millions of $) 2.2 3 4.6 1.2 5
0B1 2 0.5 0.6 0.81C
B 2 40 8.8 ?13.8 ?2.6 C ?=B 0.5 8.8 17.94 ?0.75 ?2.51 C @ 0.6 ?13. 8 ?0.75 17. 153 0.035 A
0.8 ?2. 6 ?2. 51 0.035 5. 74
1- Calculate the expected return on the market portfolio and the market risk assuming that the portfolio weights are equal.
2- Calculate the expected return on the market portfolio and the market risk assuming that the portfolio weights are proportional to the asset’s market capitalisation.
3- Calculate the expected return on the market portfolio and the market risk using mean-variance model.
4- Which of the three strategies is the best.
5- Do 1, 3 and 4 assuming that the risk-free rate is r = 1% with a weight wf = 0.2.

Related Discussions:- #titleAssignment Help..

Working capital cycle - cash cycle, Working capital cycle measures the time...

Working capital cycle measures the time between paying for goods supplied to you and final receipt of cash to you from their sale. It is desirable to keep this cycle as short as po

#title.health insurance., Ask Sita expects her future earnings to be worth...

Ask Sita expects her future earnings to be worth Rs. 100. If she falls ill, her expected future earning will be Rs. 25. There is a belief that she may fall ill with probability of

Risk, Hsve s Finsncial Econometrics project that needs to be done. It invol...

Hsve s Finsncial Econometrics project that needs to be done. It involves fitting AR(1)-Garch(1,1) model to two series of log returns and copulas, forecasting and Risk calculation

Aggressive working capital policy, All the non-current assets and part of p...

All the non-current assets and part of permanent assets financed by long term. Remaining permanent assets all temporary fluctuating assets by short term. £65m long term debt and eq

Investment generate an economic profit, An investment will require a $1.0 m...

An investment will require a $1.0 million cash outlay.  It will generate perpetual net cash inflows of $115,000 a year. Investors could earn 9 percent elsewhere by taking the same

APPLIED FINANCIAL ECONOMETRICS, Question 1 Suppose that you have 150 obser...

Question 1 Suppose that you have 150 observations on production (yt) and investment (it), and you have estimated the following ADL(3,2) model: (1 – 0.5L – 0.1L2 – 0.05L3)yt = 0.7

Calculate correlation coefficient, Question The variance of Stock A is ...

Question The variance of Stock A is .004, the variance of the market is .007 and the covariance between the two is .0026. What is the correlation coefficient?

What is the impact of diversification, What is the relationship between the...

What is the relationship between the arithmetic average and the geometric average return for each stock and the S&P 500? Explain. Compare the standard deviations for each of the

Define any financial-economic terminology, Organisations involved in intern...

Organisations involved in international trade and investment seek economic and political stability. For this reason it is prudent for those organisations to conduct a country risk

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd