Compare the FF 3 factor models, a two factor model (with RMRF, HML), and the pure CAPM. For each model, report the root mean square alpha 2/, and the average R2. What is your verdict?

4. Run a cross-sectional regression to characterise average returns in terms of b, h, s. (1) Report the coefficients, and their standard errors and t-statistics. Do these coefficients make sense? Why the standard errors may be wrong? (2) Produce correct standard errors using the Fama-MacBeth technique. Revise your testing accordingly and compare the results.