Multiple Linear Regression 01 – Portfolio monthly excess returns

You are a financial analyst at an investment firm. Your manager asks you to analyze the performance drivers for one of the firm’s portfolios. He asks you to construct a regression model of the portfolio’s monthly excess returns (RET) against three factors: the market excess return (MRKT), a size factor (SMB), and the monthly percentage change in a bond index (BOND).

You collect the data and run the regression, and the resulting model is:

YRET = -1.099 + 1.917XMRKT + 0.589XSMB + 0.047XBOND.

You then create some diagnostic charts to help determine the model fit.

Why is the language of the Learning Outcome Statements (LOS) different from the curriculum?
The LOS are protected under the CFA Institute's copyright, and we don't have permission to duplicate them verbatim. Therefore, we've rephrased the LOS and included alphabetical labels (a, b, c, …) to simplify cross-referencing with the original LOS in the curriculum when needed.

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