Exhibit 5 Steps

- Create an new worksheet in your workbook and label it Exhibit 5.Download the exhibit 5 template from blackboard.Copy the entire worksheet that contains the template onto the entire worksheet that you added to our workbook.

- Make room for 16 new columns directly to the right of your lagged S&P data.(Your S&P data should be one column of regular, contemporaneous, monthly returns, with the 20 basis points subtracted off, and then three columns of this S&P data lagged one month each time.)The first 8 new columns will be for indicator variables (4 for up markets and 4 for down markets).Consider formatting these 8 columns as numbers (not percentages) with no decimal places.The next 8 will be for the product of the indicator variables and the S&P data (4 for up markets and 4 for down).

- In the first of the 16 columns, use a statement such as =if(S&P>0,1,0), where "S&P" is the column (and row) of your contemporaneous S&P data.This excel command says that if the piece of data is positive, then put a 1 in the spot, otherwise put a zero.Label the column "S&P Up". In the second column, use a statement such as =if(S&P-1>0,1,0), where "S&P-1 is the column (and row) of your S&P data lagged one month.Label this column S&P-1 Up.In the third new column do the same but reference S&P-2, in the 4^th reference S&P-3.

- In columns 5-8 do the same with the inequality sign reversed, such as =if(S&P<0,1,0).Label these columns S&P Down, S&P-1 Down, etc.

- In column 9 multiply your first indicator variable times your contemporaneous S&P data.In this row you will get a mixture of numeric data and zeroes.Label this column "S&P Up".In column 10 multiply your second indicator variable times the S&P-1 data.Label this column S&P-1 Up.Column 11 should be the third indicator variable times the S&P-2 data, column 12 times S&P-3.

- In column 13 multiply your fifth indicator variable times your contemporaneous S&P data.Label this column "S&P Down".In column 14, your sixth indicator variable times our S&P-1 data, and use the label "S&P-1 Down".Continue in this way for columns 15 and 16.Copy these 16 columns of formulas into all 81 rows of your monthly data.

- Copy all 16 formulas in the first row of your data down to the bottom of your data so that you have created an entire data block.

- For each hedge fund strategy in turn, run a regression of the hedge fund return column (Y_i) on the 8 columns of S&P percentage return data that you have created (X_1i, ..., X_8i).

- Note that the article, and the exhibit labels, use a different notation convention than our book.What we would normally call the coefficients ₀, ₁, ₂, ₃, ₄, ₅, ₆, ₇, ₈ the article calls , ₀, ₁, ₂, ₃, ₀, ₁, ₂, ₃, with the first four betas relating to up markets and the second four relating to down markets.

- Note that the exhibit does NOT make use of the intercept coefficient, whereas exhibit 2 and 4A had.

- In order to complete the exhibit, on or near your regression you should sum the three lagged betas for up markets and get a total.Copy and paste this total into the correct spot in the template.You should also sum the three lagged betas for down markets and get a total.Copy and paste this total into the correct spot in the template.

- Copy and paste into the template the coefficients of the contemporaneous S&P variables, the one for up markets and then the one for down markets.

- In the summation columns on the template, the sum of the betas will calculate automatically.