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1. You are given the unconditional betas for these 10 portfolios for both time-periods. What do these betas tell us in terms of risk? 2.
1. You are given the unconditional betas for these 10 portfolios for both time-periods. What do these betas tell us in terms of risk?
2. You are given the price of risk (factor prices). What are factor prices? Are there any differences in factor prices across the two time periods?
3. Now that you have analyzed the data, recommend whether he should create a fund based on a value strategy. Explain your reasoning.
Betas for the sample from 1980 to 1999 Price of risk for the sample from 1980 to 1999 b mkt b smb bhml lambda t-stat p-value 7.74 (1.36) 0.22 0.25 (0.09) 0.93 0.17 (0.29) 0.78 portfolios avg ret b mkt b smb b hml 1 7.553 0.994 0.060 -0.579 2 7.307 0.969 -0.096 -0.330 3 7.913 1.012 -0.124 -0.106 4 7.608 1.005 -0.065 0.037 5 7.348 0.994 0.044 0.119 6 6.584 1.008 -0.086 0.119 7 6.346 0.939 0.046 0.253 8 7.227 0.956 -0.130 0.309 9 7.999 0.947 0.011 0.502 10 8.232 1.063 0.056 0.531 Betas for the sample from 2000 to 2020 Price of risk for the sample from 1980 to 1999 b_mkt b smb b_hml lambda t-stat p-value -10.87 (-1.65) 0.15 8.04 (1.44) 0.20 -1.15 (-0.78) 0.47 portfolios avg ret b_mkt b smb b hml 1 2.735 1.137 -0.010 -0.398 2 4.353 0.926 -0.122 -0.009 3 4.615 0.896 -0.207 0.085 4 3.195 0.912 -0.173 0.235 5 3.237 0.935 -0.108 0.300 6 2.994 0.889 -0.169 0.485 7 4.826 0.808 -0.092 0.405 8 4.528 0.942 -0.083 0.491 9 2.633 0.966 -0.024 0.491 10 4.692 1.058 0.146 0.629 Betas for the sample from 1980 to 1999 Price of risk for the sample from 1980 to 1999 b mkt b smb bhml lambda t-stat p-value 7.74 (1.36) 0.22 0.25 (0.09) 0.93 0.17 (0.29) 0.78 portfolios avg ret b mkt b smb b hml 1 7.553 0.994 0.060 -0.579 2 7.307 0.969 -0.096 -0.330 3 7.913 1.012 -0.124 -0.106 4 7.608 1.005 -0.065 0.037 5 7.348 0.994 0.044 0.119 6 6.584 1.008 -0.086 0.119 7 6.346 0.939 0.046 0.253 8 7.227 0.956 -0.130 0.309 9 7.999 0.947 0.011 0.502 10 8.232 1.063 0.056 0.531 Betas for the sample from 2000 to 2020 Price of risk for the sample from 1980 to 1999 b_mkt b smb b_hml lambda t-stat p-value -10.87 (-1.65) 0.15 8.04 (1.44) 0.20 -1.15 (-0.78) 0.47 portfolios avg ret b_mkt b smb b hml 1 2.735 1.137 -0.010 -0.398 2 4.353 0.926 -0.122 -0.009 3 4.615 0.896 -0.207 0.085 4 3.195 0.912 -0.173 0.235 5 3.237 0.935 -0.108 0.300 6 2.994 0.889 -0.169 0.485 7 4.826 0.808 -0.092 0.405 8 4.528 0.942 -0.083 0.491 9 2.633 0.966 -0.024 0.491 10 4.692 1.058 0.146 0.629Step by Step Solution
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