At the End of Thursday,the Estimated Covariance Between Assets a and B

question 10

Multiple Choice

At the end of Thursday,the estimated covariance between assets A and B is 0.0001.During Friday asset A produces a return of 3% and asset B produces a return of zero.An EWMA model with lambda equal to 0.9 is used.What is an estimate of the covariance at the end of Friday?

• A) 0.000090
• B) 0.000081
• C) 0.000100
• D) 0.000095

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Definitions:

Empirical Returns

Returns that are calculated based on historical data, reflecting the actual gains or losses realized over a specific period.

Conventional CAPM

The traditional Capital Asset Pricing Model that calculates the expected return on an investment by assessing risk relative to the market as a whole.

Human Capital

The economic value of an individual’s skills, knowledge, and experience, considered in relation to their contributions to an economy or business.

Market Proxy

Market Proxy is a representative element, such as a stock index, that is used to approximate the behavior or characteristics of the overall market.