You will walk through an example of calibrating a model to use for recommending portfolio allocations.

First, download some data. Go to Yahoo Finance and download levels for the assets in the allocation below. Use the monthly adjusted close values (so you can ignore the dividend information) for the period :

Start date: 12/1/2011

End date: 12/1/2021

(use the "max" time period to download and then trim to this range)

This will provide ten years of monthly returns.

Now, assume that some rational investor will have the following asset allocation:

• 15% Russell 2000 (^RUT)
• 20% SPDR S&P 500 ETF Trust (SPY)
• 20% Invesco QQQ Trust (QQQ)
• 5% Clough Global Equity Fund (GLQ)
• 20% iShares 20+ Year Treasury Bond ETF (TLT)
• 13% iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
• 5% Templeton Global Bond Fund Class A (TPINX)
• 2% SPDR Gold Shares (GLD)

The Yahoo Finance ticker is in parentheses for each asset.

Calculate the log returns for these assets and then follow the directions in the book for calculating the James-Stein Estimates for these assets in excel.

SHOW YOUR WORK AND FORMULAS