Strategic and Tactical Asset Allocation by Henrik Lumholdt

Author:Henrik Lumholdt
Language: eng
Format: epub, pdf
ISBN: 9783319895543
Publisher: Springer International Publishing

(6.1)

whereRi = the return on asset i.

E(Ri) = the expected return on asset i.

bik = the sensitivity of the asset’s return to factor k (“factor loading”).

Fk = the unexpected change in the value of the kth factor, k = 1, …k.

εi = a random error term with a mean of zero and a variance of .

Investors are assumed to have homogeneous beliefs that such a k-factor model generates returns. Generalizing (6.3) to a portfolio of n securities, each with a weight of ωi, we get:

(6.2)

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