[Gretl-users] Re: Coefficient restrictions (Riccardo (Jack) Lucchetti)

[Mixon, Wilson]

Jack,
Thanks. This works like a charm.
Wilson

My problem: Regressing the returns from a portfolio against the returns from several market benchmarks.  Restrict the model so that each
coefficient is non-negative and they sum to 1. Suggestions?

Jack's solution: Express (n-1) portfolio weights as squared parameters and the n-th one as 1 minus all the others. Estimate via nls. Example:

nls rPORT = w1*rSP500 + w2*rSP400 + w3*rSP600
        w1 = b1^2
        w2 = b2^2
        w3 = 1 - w1 - w2
        params b1 b2
end nls