Assume that stock market returns do follow a single-index structure.An investment fund analyzes 200 stocks in order to construct a mean-variance efficient portfolio constrained by 200 investments.They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor.
A)200; 19,900
B)200; 200
C)19,900; 200
D)19,900; 19.900
E)none of the above

Question

Quizplus · Accepted Answer

Since the stock market returns follow a single-index structure, the investment fund only needs to estimate the sensitivity coefficients (beta values) for each of the 200 stocks, as well as the expected return for each stock. Therefore, they need to calculate 200 estimates of expected returns and 200 estimates of sensitivity coefficients, resulting in a total of 400 estimates needed. Therefore, the correct answer is B, with a total estimate count of 200+200= 400.

Assume That Stock Market Returns Do Follow a Single-Index Structure