Category: Hedging
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Introducing the “
MatrixReconstructed Return” – a Handy Shortcut for Estimating BetaFor anyone building and managing equity portfolios for clients, I have two pieces of advice. 1. Use a fundamental risk model. One of the first advantages of fundamental risk models is they afford easier portfolio optimization. When you have thousands of stocks to choose from, in order to model them completely using returns you would…
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Predict beta more accurately by using imaginary returns
Updated October 2014, replacing the word “imaginary” with “reconstructed.” – TMA If you’re managing portfolios without using a risk model, you’re probably relying on regression statistics of asset returns to estimate risk characteristics such as Beta. For reporting purposes or for the purpose of measuring sensitivity to a broad index whose constituents don’t change drastically…