Testing CAPM
Hi guys,
I'm testing CAPM and Fama&French factors models but I got so much diverisfied portfolio that I don't know which proxy I should get. My portfolio (48 assets):
20 - equity indices for industry and countries
10 - fixed income
5 - futures on commodities
3 - actively managed mutual funds
6 - privately-owned equities
4 - alternative investments
I can't change the portfolio. What would you choose for market proxy?
S&P 500?
Why don't you just create a market proxy that is weighted by whatever index the individual components of your fund are benchmarked to?
For (a simplified) example, if your portfolio is half actively managed mutual fund A, and the other half is passive mutual fund B, then you create a market index using half of A's benchmark and half of B's benchmark.
Also, how do you have privately owned equities within a market portfolio? If it is not a publicly traded equity, you're not going to have much accurate data (if any) on market prices and therefore on return... I could be wrong here, as it's been a while since I took any financial markets classes.
I guess your other issue is going to be the alternative investments, but it's difficult to say here, without knowing what these investments actually are.
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