The excel file contains:
Monthly returns (including dividends) of the three portfolios constructed .
o Monthly returns (including dividends) of the stock index.
o Monthly returns of a factor representing the exchange rate risk (a mimicking portfolio
constructed based on the SEK/USD exchange rate).
o The riskfree rate: the 30-day t-bill rate per year.
o The 10-year treasury bond yield to maturity, % per year.
1. Use the three equity portfolios as the test assets and perform a test of conditional
multifactor model with the market portfolio (market index) and the mimicking
portfolio for the exchange rate risk as factors and the lagged yield spread as the
instrument. Note that the yield spread is the difference between the yield on a long
term bond and the short term interest rate.
b) Plot the conditional betas in a diagram. What are the risk exposure of the different portfolios on the different factors.
The Excel file contains daily data on fixed rate swaps of different maturities
a)Compute the first three principal components for the interest rates.
b) Run a multiple regression of the annual interest rates of different maturities on the
computed principal components (one regression for each maturity).
Note: use the function LINEST in Excel to estimate the regressions.
c) For each swap compute the percentage of the total variance explained by each of
the principal components.
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