By Frank J. Fabozzi, Sergio M. Focardi, Svetlozar T. Rachev, Bala G. Arshanapalli, Markus Hoechstoetter
An obtainable advisor to the turning out to be box of monetary econometrics
As finance and fiscal items became extra advanced, monetary econometrics has emerged as a fast-growing box and valuable origin for a person interested by quantitative finance. The innovations of monetary econometrics facilitate the improvement and administration of latest monetary tools through offering versions for pricing and probability review. in brief, monetary econometrics is an vital element of smooth finance.
The fundamentals of monetary Econometrics covers the widely used recommendations within the box with out utilizing pointless mathematical/statistical research. It specializes in foundational rules and the way they're utilized. themes coated contain: regression types, issue research, volatility estimations, and time sequence strategies. moreover, an linked web site incorporates a variety of real-world case experiences regarding very important concerns during this sector.
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Extra resources for The Basics of Financial Econometrics: Tools, Concepts, and Asset Management Applications (Frank J. Fabozzi Series)
Sample text
An active portfolio strategy uses available information and forecasting techniques to seek a better performance than a portfolio that is simply diversified broadly. Essential to all active strategies are expectations about the factors that have been found to influence the performance of an asset class. For example, with active common stock strategies this may include forecasts of future earnings, dividends, or price-earnings ratios. With bond portfolios that are actively managed, expectations may involve forecasts of future interest rates and sector spreads.
Estimating the Characteristic Line of a Mutual Fund We discuss now a model for security returns. This model suggests that security returns are decomposable into three parts. The first part is the return of a risk-free asset. The second is a security-specific component. , excess return) which is then weighted by the individual security’s covariance with the market relative to the market’s variance. 11) where RS ↜= the individual security’s return Rf ↜= the risk-free return αS ↜= the security-specific term β S ,M = cov(RS , RM ) / var(RM ) = the so-called beta factor The beta factor measures the sensitivity of the security’s return to the market.
More exactly, we are interested in their correlation expressed by the correlation coefficient explained in Appendix A. Generally, we know that correlation assumes values between 13 14 The Basics of Financial Econometrics −1 and 1 where the sign indicates the direction of the linear dependence. So, for example, a correlation coefficient of −1 implies that all pairs (x,y) are located perfectly on a line with negative slope. This is important for modeling the regression of one variable on the other.