Page 341 - Contributed Paper Session (CPS) - Volume 7

CPS2120 Grażyna Trzpiot et al.
54% of total variance. Therefore, the component has been identified as demo-
economic risk. The second component has been heavily loaded with dividend
fund, WIG20 returns, REER and negatively with EUR to PLN exchange rate. It
would be identified as financial market risk and explained 23% of total
variance. The last component was loaded negatively only by a real estate fund
and would be associated with individual wealth risk.
Construction of portfolios of weight average of stock and bonds, then return
rate of main index on stock exchange and relative change of monthly return
rate of long-term government bond yields 10-year. We construct different
portfolio with weights: 40/60, 50/50 and 60/40 (proportion of stock and
bond respectively). The return rates of built portfolios were calculated by
means of the multifactor model.

Scenario #1: Portfolio return rate 40/60:
RpGERMANY = − 0.72F1 R = 0.53
2
The interpretation for this result is as follows: if risk represented by F1 increase
by 1, then Rp will decrease by 0.72%.
2
RpSPAIN = − 0.25F1 + 0.94F3 R = 0.95
The interpretation of this equation is as follows: if risk represented by F1
increase by 1, then Rp will decrease by 0.25%, if risk represented by F3 increase
by 1, then Rp will increase by 0.94%.
RpPOLAND = − 0.84F1 + 0.4F2 − 0.16F3 R = 0.91
2
The interpretation of this equation is as follows: if risk represented by F1
increase by 1, then Rp will decrease by 0.84%, if risk represented by F2 increase
by 1, then Rp will increase by 0.4%, if risk represented by F3 increase by 1, then
Rp will decrease by 0.16%.

Scenario #2: Portfolio return rate 50/50:
2
RpGERMANY = − 0.39F1 + 0.33F2 R = 0.27
The interpretation for this result is as follows: if risk represented by F1 increase
by 1, then Rp will decrease by 0.39%, if risk represented by F2 increase by 1,
then Rp will increase by 0.33%.
RpSPAIN = − 0.22F1 + 0.049F2 +0.95F3 R = 0.95
2
The interpretation of this equation is as follows: if risk represented by F1
increase by 1, then Rp will increase by 0.02%, if risk represented by F2 increase
by 1, then Rp will decrease by 0.045%.
2
RpPOLAND = − 0.81F1 + 0.47F2 − 0.17F3 R = 0.92
The interpretation of this equation for Poland is as follows: if risk represented
by F1 increase by 1, then Rp will decrease by 0.81%, if risk represented by F2
increase by 1, then Rp will increase by 0.47%, if risk represented by F3 increase
by 1, then Rp will decrease by 0.17%.

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