Part 1. Univariate Statistics.
The data below was obtained from Professor Kenneth French’s data library website:
http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
The table below contains monthly returns of the “Fama/French 5 Factors” and the monthly returns of the “Momentum factor” for the period from July 1963-December 2017 (654 months)
Full Sample: 1963M07 – 2017M12 | ||||||
MKT_RF | SMB | HML | RMW | CMA | MOM | |
Mean | ||||||
Std. Dev. | ||||||
Skewness | ||||||
Kurtosis | ||||||
Observations | ||||||
First sub-sample: 1963M07 – 1981M08 | ||||||
MKT_RF | SMB | HML | RMW | CMA | MOM | |
Mean | ||||||
Std. Dev. | ||||||
Skewness | ||||||
Kurtosis | ||||||
Observations | ||||||
Second sub-sample: 1981M09 – 1999M10 | ||||||
MKT_RF | SMB | HML | RMW | CMA | MOM | |
Mean | ||||||
Std. Dev. | ||||||
Skewness | ||||||
Kurtosis | ||||||
Observations | ||||||
Third sub-sample: 1999M11 – 2017M12 | ||||||
MKT_RF | SMB | HML | RMW | CMA | MOM | |
Mean | ||||||
Std. Dev. | ||||||
Skewness | ||||||
Kurtosis | ||||||
Observations |
Part 2.
Go to Yahoo! finance site. Please download monthly adj. close prices from 12/1/2012 to 12/1/2017 for S&P 500 index (^SP500TR) and the following funds:
Sharpe Ratios (Monthly) | |
The Sharpe Ratio measures excess return per unit of risk. The FSLCX fund has the highest Sharpe ratios and the FLATX fund has the lowest Sharpe ratios.
Variable | Count | Mean | Std. Dev. | Std. Error of Mean | Lower Limit | Upper Limit |
R_FIEUX | R_FLATX | R_FCBFX | R_TRREX | R_FSLCX | |
Mean | |||||
Std. Dev. |
Annualized risk free = 0.5%
Mean | Std. Dev. | Sharpe Ratio (Annualized) | |
Part 3. Estimating expected returns
In this section, you need to use information from Part 1 and Part 2.
Use the Fama-French 5-Factor model below to estimate the expected returns of each of the funds from part 2:
To simplify notation in the regression notice that = is stock or portfolio excess return and = is the excess return on a “stock market portfolio”
In order to do this follow 3 simple steps:
Dependent Variable | ER_FIEUX | ER_FLATX | ER_FCBFX | ER_TRREX | ER_FSLCX |
Fama-French 5-Factor model | |||||
Variable | Coefficient | Coefficient | Coefficient | Coefficient | Coefficient |
C | |||||
MKT_RF | |||||
SMB | |||||
HML | |||||
RMW | |||||
CMA | |||||
R-squared | |||||
Adjusted R-squared | |||||
S.E. of regression |
*Statistically significant.
Part 4. Forecasting models for the rate of inflation
Go to FRED’s website (https://fred.stlouisfed.org/) and download the data for:
In this hands-on exercise you will construct forecasting models for the rate of inflation, based on CPIAUCSL.
For this analysis, use the sample period 1970:M01–2012:M12 (where data before 1970 should be used, as necessary, as initial values for lags in regressions).
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