Chapter 16 Single Index Model

Updated: October 16, 2020

Copyright © Eric Zivot 2015

Outline

1. Single Index Model and Portfolio Theory
   1. portfolio optimization using SI covariance matrix
      1. always pd, reduces number of estimated components in matrix.
      2. Compare results with sample covariance matrix
   2. Risk analysis of asset and portfolios: factor risk reports
2. Statistical Properties of Least Squares Estimates
   1. Bias
   2. Standard errors
   3. Asymptotic distributions and confidence intervals
3. Hypothesis Testing in the Single Index Model
   1. Tests for coefficients
   2. Tests for model assumptions: check to see if residual correlation matrix is diagonal!
   3. Diagnostics for covariance stationarity
   4. Rolling estimates from the single index model

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