R/plotLSandRobustVHI.R

In kecoli/mpo: Companion to Modern Portfolio Optimization with R, 2nd Edition

plotLSandRobustVHI = function(x)
{
ret = x
x=(ret[,2]-ret[,3])*100
y=(ret[,1]-ret[,3])*100
fit.ls = lm(y~x)
fit.rob = lmRob(y~x, control=lmRob.control(efficiency=0.99))
plot(x,y, pch=20, xlab="Market Returns %",ylab="VHI Returns (%)",type="n",main="")
abline(fit.rob, col="black", lty=1, lwd=2)
abline(fit.ls, col="red", lty=2, lwd=2)
abline(fit.rob$coef[1]+3*1.29*fit.rob$scale, fit.rob$coef[2], lty=3, col="black")
abline(fit.rob$coef[1]-3*1.29*fit.rob$scale, fit.rob$coef[2], lty=3, col="black")
ids=which(fit.rob$M.weights==0)
points(x[-ids], y[-ids], pch=20)
points(x[ids], y[ids], pch=1)
legend("topleft",
       legend=c(expression("Robust " ~ hat(beta)==0.63~(0.23)), 
                expression("       LS " ~ hat(beta)==1.16~(0.31))),
       lty=1:2, col=c("black", "red"), bty="n", lwd=c(2,2), cex=1.2)
}