I am doing extensive research on portfolio replication and was hoping to get some help with some problems I am encountering.
I am running a regression between 2 assets that I believe replicate another asset well. For example, let A be the asset we are replicating and let B and C be the assets we will use to mimic A. I want to run a regression on the returns.
How would I run a regression such that I can include the returns on dividends paid on each of these assets. Would I just add in the amount of the dividend paid to the stock price on the day the dividend is paid? Would I then calculate a return based on those numbers?
Also, how would I use the regression output to find annualized volatility and return on asset A? What about assets B and C?
Finally, what would be the difference between the standard error of each of my variables (B and C) vs. the standard error of the model as a whole?