You work for Golden Mountains Ltd., an investment fund that specialises in equity investment. Your fund currently holds

[answerhappygod]

You work for Golden Mountains Ltd., an investment fund that
specialises in equity investment. Your fund currently holds an
international portfolio of equities including US, European, and
Japanese stocks. The fund management is considering a further
diversification of the fund portfolio and contemplates the
possibility of investing in some emerging markets (in South Asia,
Eastern Europe, and Latin America). You are asked to analyse the
optimality of such a diversification in the mean-variance
framework. Your manager requires you to write a report that should
summarise and critically discuss your empirical
findings, as well as provide a recommendation about the inclusion
of emerging market stocks in the portfolio of your fund. Your
manager sets very high standards and expects a professional (yet
concise) report that he can present to the fund’s clients.
Detailed problem description
Answer these questions citing some empirical evidence.
In order to estimate expected returns, you decide to use
the CAPM. Estimate the beta of the six indices listed above with
respect to the MSCI All Country index. Use these estimates of beta
in order to compute the CAPM expected return of these six indices.
(For estimates of the equity risk premium, see for example, Jorion
and Goetzmann, 1999).Compute monthly returns for each series.
Obtain the current US risk-free rate of interest (You can use the
data on the interest rate of the US 3-month Treasury Bills to
compute such a rate). Compute the mean and standard deviation of
each series and the variance-covariance matrix. Obtain monthly
total return index for the US dollar-based MSCI World equity index
(MSCI WORLD U$) and compute its returns.