The objective of the project is to analyze the risk and return structure of the investment.
Methodology: when it comes to analyzing the risk and return structure of investments, there are numerous measures one could utilize. Over and above “standard” measures, this project requires two additional measures?down-market beta and GARCH volatility, which are respectively estimated via the dual-beta and GARCH models.
The dual-beta model is an extension of the standard Capital Asset Pricing Model (CAPM). It estimates separately the parameters for up-market, when the daily return for the market index is non-negative, and down-market, when the daily return for the market index is negative. The dual-beta model can thus be expressed as:
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