A) In the predictability lecture, we discussed evidence concerning violations of the weak for of the EMH that are based upon lagged return trading strategies. Briefly discuss the three types of strategies (that is, long, intermediate, and short return horizons). In your discussion of each horizon, discuss the basic method used to form portfolios, what the results are (that is, do returns exhibit reversals or continuations), the average level of profits, and likely problems associated with the studies.

B) We also discussed evidence on the book-to-market effect as documented in a study by Fama and French (1992). Table I of that study (included here) provides a two-way sort on firm size and beta. Briefly discuss the results from that table. What is the relationship between beta and average monthly returns? What is the relationship between firm size (that is, market equity) and average monthly returns? Which variable, beta or size, has the more significant link to average monthly returns?

C) In table V of the Fama and French (1992) study (included here), there is a two-way sort on firm size and book-to-market. Briefly discuss the results from that table. What is the relationship between book-to-market and average monthly returns? What is the relationship between form size (that is, market equity) and average monthly returns? Which cell of the two-way sort provides the highest average monthly return? What type of problems might an investor expect to face in attempting to purchase stocks in the highest return cell?

Table I Average Returns, Post-Ranking Bs and Average size For Portfolios Formed on Size and then B: Stocks sorted on ME Down then Pre-Ranking B(Across: July 1963 to December 1990 Portfolios are formed yearly. The breakpoints for size (ME, price times shares outstanding) deciles are determined in June of year t (-1963-1990) using all NYSE stocks on CRSP. All NYSE, AMEX, and NASDAQ stocks that meet the cRSP.coMPUSTAT data requirements are allocated to the 10 size portfolios using the NYSE breakpoints. Each size decile is subdivided into 10 using As of individual stocks, estimated with 2 5 years of monthly to returns (as available) ending in June of year We use only NYSE stocks that meet the CRSP coMPUSTAT data requirements to establish the A breakpoints. Thc equal-weighted monthly returns 100 portfolios are then on the resulting calculated for July of year to June of year t+ 1 The ss use the full 1963 to December 1990) sample of post-ranking returns for each portfolio. The pre- and post-ranking As here and in all other tables) are the sum of the slopes from a regression monthly returns on of the current and prior month's returns on the value-weighted portfolio ofNYSE,AMEX, and (after 1972 NASDAR stocks. The average return is the time-series average of the monthly equal-weighted portfolio returns, in percent. The average size of a portfolio is the time series average of monthly averages of lnaME)for stocks in the portfolio at end of June of each year, with ME denominated in millions of dollars the The average number of stocks per month for the sizes portfolios in the smallest size decile varies from average number stocks for the size portfolios in size deciles 2 and 3 is between 15 and 41, the average number for the largest 7 size deciles is between 11 and 22. and The All column shows statistics for equal weighted size decile ME) portfolios. The All row shows statistics for equal-weighted portfolios of the stocks in each B group All Low B-4 87 8.8 High-0 Panel A: Average Monthly Returns (in Percent) 1.25 1.34 1.29 1.36 1.31 1.33 1.28 1.24 1.21 1.25 1.14 Small ME 1.62 1.71 1.57 1.79 1.61 1.60 1.50 1.37 1.63 1.50 1.42 ME-2 1.29 1.25 1,42 1.36 1.39 1.65 1.61 1.37 1,31 1.34 1.11 ME-3 1.24 1.12 1.31 1.17 1.70 1.29 1.10 1.31 1,36 1.26 0.76 1.25 1.27 1.13 1.54 1.06 1.34 1.06 1.41 1.17 1.35 0.98 1.29 1.34 1.42 1.39 1.48 1.42 1.18 1.13 1.27 1.18 1.08 ME-6 1.17 1.08 1.53 1.27 1.15 1.20 1.21 1.18 1.04 1.07 1.02 ME-7 1.07 0.95 1.21 1.26 1.09 1.18 1.11 1.24 0.62 1.32 0.76 1.10 1.09 1.05 1.37 1.20 1.27 0.98 1.18 1.02 1.01. 0.94 ME-9 0.98 0.88 1.02 1.14 1.07 1.23 0.94 0.82 0.88 0.95 0.59 Large-ME 0.89 1.01 0.93 1.10 0.94 0.93 0.89 1.03 0.71 0.74 0.56 Table I Average Returns, Post-Ranking Bs and Average size For Portfolios Formed on Size and then B: Stocks sorted on ME Down then Pre-Ranking B(Across: July 1963 to December 1990 Portfolios are formed yearly. The breakpoints for size (ME, price times shares outstanding) deciles are determined in June of year t (-1963-1990) using all NYSE stocks on CRSP. All NYSE, AMEX, and NASDAQ stocks that meet the cRSP.coMPUSTAT data requirements are allocated to the 10 size portfolios using the NYSE breakpoints. Each size decile is subdivided into 10 using As of individual stocks, estimated with 2 5 years of monthly to returns (as available) ending in June of year We use only NYSE stocks that meet the CRSP coMPUSTAT data requirements to establish the A breakpoints. Thc equal-weighted monthly returns 100 portfolios are then on the resulting calculated for July of year to June of year t+ 1 The ss use the full 1963 to December 1990) sample of post-ranking returns for each portfolio. The pre- and post-ranking As here and in all other tables) are the sum of the slopes from a regression monthly returns on of the current and prior month's returns on the value-weighted portfolio ofNYSE,AMEX, and (after 1972 NASDAR stocks. The average return is the time-series average of the monthly equal-weighted portfolio returns, in percent. The average size of a portfolio is the time series average of monthly averages of lnaME)for stocks in the portfolio at end of June of each year, with ME denominated in millions of dollars the The average number of stocks per month for the sizes portfolios in the smallest size decile varies from average number stocks for the size portfolios in size deciles 2 and 3 is between 15 and 41, the average number for the largest 7 size deciles is between 11 and 22. and The All column shows statistics for equal weighted size decile ME) portfolios. The All row shows statistics for equal-weighted portfolios of the stocks in each B group All Low B-4 87 8.8 High-0 Panel A: Average Monthly Returns (in Percent) 1.25 1.34 1.29 1.36 1.31 1.33 1.28 1.24 1.21 1.25 1.14 Small ME 1.62 1.71 1.57 1.79 1.61 1.60 1.50 1.37 1.63 1.50 1.42 ME-2 1.29 1.25 1,42 1.36 1.39 1.65 1.61 1.37 1,31 1.34 1.11 ME-3 1.24 1.12 1.31 1.17 1.70 1.29 1.10 1.31 1,36 1.26 0.76 1.25 1.27 1.13 1.54 1.06 1.34 1.06 1.41 1.17 1.35 0.98 1.29 1.34 1.42 1.39 1.48 1.42 1.18 1.13 1.27 1.18 1.08 ME-6 1.17 1.08 1.53 1.27 1.15 1.20 1.21 1.18 1.04 1.07 1.02 ME-7 1.07 0.95 1.21 1.26 1.09 1.18 1.11 1.24 0.62 1.32 0.76 1.10 1.09 1.05 1.37 1.20 1.27 0.98 1.18 1.02 1.01. 0.94 ME-9 0.98 0.88 1.02 1.14 1.07 1.23 0.94 0.82 0.88 0.95 0.59 Large-ME 0.89 1.01 0.93 1.10 0.94 0.93 0.89 1.03 0.71 0.74 0.56