Exercise

The CER model

Before diving into the actual arithmetics, you first need to calculate the parameters of the constant expected return model (CER). Make use of the data in returns_df to estimate the model parameters for all four stocks.

Instructions

100 XP

Assign to sigma2_month the estimates of \(\sigma_i^2\) for all four assets.
Calculate sigma_month, the estimates of \(\sigma_i\) for all four assets.
Estimate the correlations \(\rho_{ij}\) between all stocks, and assign the result to cor_mat_month.
Create the pairwise scatterplots between all four stocks. Use coredata() to extract the core data from returns_df and pairs() to create a matrix of scatter plots. Take the color blue and use 16 for points pch.