5. Chen, Roll and Ross (1986) employ a set of macroeconomic variables to proxy for systematic factors, including: unanticipated growth in industrial production (MP), changes in expected inflation (DEI), unexpected inflation (UI), unanticipated changes in risk premiums (UPR), and unanticipated changes in the term premiums (UTS), WWNY refers to the return on value-weighted NYSE market portfolio (a) Describe the empirical approach Chen, Roll and Ross (1986) use to test the multifactor model. (25 Marks) (b) Discuss their main findings from the table below. (25 Marks) VWNY MP DEI UI UPRU TS Constant 1958-84 1958-67 -2.403 (-.633) 1.359 (.277) -5.269 (-.717) -3.683 (-491) 11.756 (3.054) 12.394 (1.789) 13.466 (2.038) 8.402 (1.432) -123 (-1.600) .005 (.064) -255 (-3.237) -.116 (-458) -795 (-2.376) 209 (-415) -1.421 (-3.106) -.739 (-869) 8.274 (2.972) 5.204 (1.815) 12.897 (2.955) 6,056 (74) - 5.905 (-1.879) - 086 (-040) - 11.708 (-2.299) -5.928 (-644) 10.713 (2.755) 9.527 (1.984) 8.582 (1.167) 15.452 (1.867) 1968-77 1978-84 5. Chen, Roll and Ross (1986) employ a set of macroeconomic variables to proxy for systematic factors, including: unanticipated growth in industrial production (MP), changes in expected inflation (DEI), unexpected inflation (UI), unanticipated changes in risk premiums (UPR), and unanticipated changes in the term premiums (UTS), WWNY refers to the return on value-weighted NYSE market portfolio (a) Describe the empirical approach Chen, Roll and Ross (1986) use to test the multifactor model. (25 Marks) (b) Discuss their main findings from the table below. (25 Marks) VWNY MP DEI UI UPRU TS Constant 1958-84 1958-67 -2.403 (-.633) 1.359 (.277) -5.269 (-.717) -3.683 (-491) 11.756 (3.054) 12.394 (1.789) 13.466 (2.038) 8.402 (1.432) -123 (-1.600) .005 (.064) -255 (-3.237) -.116 (-458) -795 (-2.376) 209 (-415) -1.421 (-3.106) -.739 (-869) 8.274 (2.972) 5.204 (1.815) 12.897 (2.955) 6,056 (74) - 5.905 (-1.879) - 086 (-040) - 11.708 (-2.299) -5.928 (-644) 10.713 (2.755) 9.527 (1.984) 8.582 (1.167) 15.452 (1.867) 1968-77 1978-84
