1. Suppose you have data on today's stock returns of 500 publicly-traded firms. You sort the data on returns based on yesterday's values of book-to-market (BM) ratios and momentum (MOM). The following table summarizes your findings Low MOM High MOM Low BM 5% 9% High BM 13% 17% Table 1: Mean returns by sorting variable (a) Suppose you run the following regression on the data R = a + BIBMt_1+ 32MOM _1 + &; What values do you expect for the coefficients a, B1 and B2? (b) How do you interpret B1? (c) Should you short MOM? Should you go long BM? Discuss briefly (d) How would you modify the regression if you wanted to test whether MOM works best for high or low BM stocks? If you were to run this test on your data, what do you expect to find