For the normal model of mean returns with known variance in Section 7.2.1, show that the posterior predictive mean is µ µ P = T and the posterior predictive variance is 2 22 σ σσ P = + T . Hint: Use...

For the normal model of mean returns with known variance in Section

7.2.1, show that the posterior predictive mean is µ µ P = T and the posterior

predictive variance is 2 22 σ σσ P = + T . Hint: Use the iterated conditional

expectation formula EY EEY X ( ) ( ( | )) = and the variance decomposition

var( ) (var( | )) var( ( | )) X = + E X Y EX Y .