This is probably just something simple I’m missing, but the post didn’t get any responses the first time: Question on CFAI Reading 26 (Asset Allocation), p. 277, Exhibit 21 (also in Exhibit 24). How is equilibrium return being calculated? Thanks in advance.
it’s just an example - you won’t have to know that - but look below the chart on 277, it tells how the calculate the equilibrium return
Thanks Halberstram. I did see that footnote, but assuming “equilibrium return vector (II)” is the same as equilibrium return, it’s hard to gain a comprehensive understanding of the BL model w/o fully understanding how the calculation is made. On reflection, I think what they’re saying is you take the actual index weights of the DJGI, along w/ historical return and std dev. and determining a return w/ a certain confidence for each index. You can plot it all out like they did in Exhibit 22 in efficient frontier form.