So I have excess returns, all the coefficients needed (hi, bi, si), as well as the risk free rate, SMB number, and HML number.
I have 39 companies (and I have their returns and standard deviations). These 39 need to be in a portfolio, and I'm supposed to find out how the portfolio weight of each company. Also
Its factor sensitivity to HML is at least 0.48. Its factor sensitivity to SMB is at least 0.02.
Its factor sensitivity to the broad market is equal to 1.
It is risk-efficient, that is, it has minimal risk coming from firm-specific events
How the hell do I do this????? I've been googling around forever. It seems like I actually don't need to do any of the regressions because I already have all the information that I need from them. ANY help would be amazing
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help please :(
Did you get a response by chance?
Yes, my groupmate figured it out. Basically you just use excel solver, with the assumptions I have above written in. Then you minimize for risk / maximize for return, and bam! solver outputs your portfolio weights
Do you think you can help me out? I think we're doing the same assignment, I'm still unsure how to input all of the data in solver
I haven't taken OM in university so I have no idea how to use solver yet. I just observed what my group mate did. I suggest youtubing how to use excel solver, it didn't seem too hard.
Okay thank you. Did you happen to have to derive the risk free rate? for each security? or just from the market risk premium that was given?
Factor models will not give you weightings. This is something you will need to come up with yourself.
For example, you can simply choose to equally weight your portfolio, or value-weight your portfolio (e.g. market cap of stock 1 / sum of all your portfolio stocks market caps).
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