An Econometric Research Project
The Steps in a Project
I. Statement of the Problem
II. Development of A Theoretical Model
Return on a Portfolio of Assets
Riskiness of Portfolio
Distribution of Returns
The Normal Distribution
PDF of Normal Distribution p. 24 or Ramu
Probability as Area
Properties of the Normal Distribution
How Does One Fully Specify the Normal Distribution
Returning to the CAPM Model
Consider Again Riskiness of Portfolio
What is the Covariance?
Covariance of Returns to Assets
How Does One Interpret the Covariance?
Statistical Independence What Does It Mean?
Statistical Independence & Covariance
Returns To Most Assets Are Not Statistically Independent!
Measure of Association Where Magnitude Matters!
Implications for CAPM Model
How Can We Reduce the Riskiness of a Portfolio?
Expected Return and Risk of Portfolios with Many Assets
What Do You Need to Estimate?
The Variance/Covariance Matrix
Adding Assets to an Existing Portfolio
Important Insight For Building a Portfolio!!!
Portfolio Building Tools---Betak
Betak and Marginal Variance
Email: AWitte@Wellesley.edu
Home Page: http://www.wellesley.edu/Facprofile/witte.htm
Other information: 302 Pendleton East