I investigate the question of how to construct a benchmark replicating portfolio consisting of a subset of the benchmark's components. I consider two approaches: a sequential stepwise regression and another method based on factor models of security returns' first and second moments. The first...

I investigate the question of how to construct a benchmark replicating portfolio consisting of a subset of the benchmark’s components. I consider two approaches: a sequential stepwise regression and another method based on factor models of security returns´ first and second moments. The first...