2. (30 points) The performance of two mutual funds is shown below: Mean return (annualized) Fund 1 0.15 A researcher runs the Fama-French three-factor regression fundt rt= +m(rm,tr,t) + smbsmb,t + hmlhml,t f,t + Fund 2 0.13 using monthly data of the past five years for these two funds and obtain the following results, where numbers inside the parentheses are t-statistics: fund 1,t - rf,t 0.0005 + 1.2 (rmt rft) + 0.6 smb,t + 0.3 hml,t = Fund 1: (0.4) R = 0.35 = fund 2,t-ft Fund 2: (2.5) R = 0.40 (2.8) (2.2) (2.1) 0.003 + 0.9 (m,t-r) + 0.1 rsmbt + 0.1 hml,t (2.6) (3.2) (2.5) The researcher also obtains the following market conditions based on historical data Market conditions (annualized) Market risk premium ( ) 0.06 m Size premium (SMB) Value premium (HML) 0.05 0.07 Risk free rate (r,) 0.03 Assume that the Fama and French three-factor model is the correct model. Based on the above information, which fund performed better in year 2017? Why?