An analyst forecasts the historical covariance of the


An analyst forecasts the historical covariance of the returns between Tel-Pal, Inc., stock and Int-Pal, Inc., stock to be 1,015. A newly forecasted covariance matrix predicts the covariance will be 703. The analyst weights the historical covariance at 20% and the forecast at 80%. Calculate the shrinkage estimate of the covariance.

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Financial Management: An analyst forecasts the historical covariance of the
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