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Question 1 (25 marks Briefly, discuss the following five characteristics of financial assets returns: (a) Absence of autocorrelations [5 marks] [5 marks] [5 marks] 5
Question 1 (25 marks Briefly, discuss the following five characteristics of financial assets returns: (a) Absence of autocorrelations [5 marks] [5 marks] [5 marks] 5 marks] [5 marks] (b) Heavy tails (c) Volatility clustering (d) Leverage effect (e) Gain/loss asymmetry Question 2 (25 marks) Consider a portfolio consisting of two assets with , and r2, as their respective returns. The portfolio returns are given by 2'2r where W+W2 1, are portfolio weights. Calculate: (a) the expected return on the portfolio , (b) the portfolio risk, (c) The optimal portfolio weights that minimizes risk
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