covariance question stocks, returns, question, following

Iginla2010

Litner and Cabell perform a factor analysis of stocks FGI and VCC. Using a world index “S” and a world bond index “B” in a two-factor model, they compute the following estimated equations for the returns of FGI and VCC respectively:

RFGI = 1.4

ohai

I can't read it. If you make it legible I will get it first try.

RFGI = 1.4

infinitybenzo

(1.4*.8*.04) + (-.2 * .1 *.007) + [(1.4)(.1) + (.8)(-.2)].01 = .0448 + -.00014 + -.0002 = .04446.

liangfeng

A) 0.0244.
B) 0.0488.
C) 0.0445.
Your answer: B was incorrect. The correct answer was C) 0.0445.


Cov(i,j) = βi,1βj,1σ2F1 + βi,2βj,2σ2F2 + (βi,1βj,2 + βi,2βj,1)Cov(F1,F2)
Cov(i,j) = (1.4

lcw77

Yeah it is very small. The issue is they gave an example that only showed covariance between equity markets. Briefly touching on the full formula.

Colum

Remember it like this.

It will be much easier.

(A * B * Factor 1) + (C * D * Factor 2) + [(A * D * Covariance Factor) + (B * C * Covariance Factor)]

Where chart is written.
Stock Bond
A C
B D



Edited 1 time(s). Last edit at Thursday, May 26, 2011 at 07:06PM by Paraguay.

Darien

qbank

Question ID#: 92117

former

Thanks, skip.