In this assignment you will perform a performance analysis for a large U.S. mutual fund and attempt to relate fund performance to characteristics of the fund.

Mutual Fund Performance Evaluation

On Blackboard, you will find a spreadsheet containing historical returns (and other data) of the Fidelity Magellan Fund, as well as the three Fama-French factors and the momentum factor.

Don?t forget to deduct the risk free rate (RF) where needed.

1. Perform market, Fama-Frech, and 4-factor model regressions. ? What do the regressions suggest about the investment strategy of this fund? ? Is this a good fund to invest in?
2. Perform rolling window 4-factor model regressions: In each month t, estimate the regres- sion using data for months t ? 59 to t.1 Produce two plots:
   1. (a) Plot the time series of rolling-window alpha estimates, along with a rolling window average of the raw return (not adjusted for risk; also using data for months t ? 59 to t)
   2. (b) Plot the rolling-window beta estimates for the four factors. Put all four series in one plot.
3. Interpret the development of the coefficients with respect to the data provided about the fund (changes of the manager, expenses,...). Do you see any connection to the facts about the fund? Comment on the alphas.
4. In each month t, compute the average excess return on the market using data for months t?59 to t. Denote this variable by r ?M,t. Similarly, denote the average excess return on the Magellan Fund in months t ? 59 to t (computed in part 2a) by r ?F,t. Regress the variable ?flow? (in column I) in month t on r ?M,t and r ?F,t using the available dates ,i.e. 1991-2010.
   • What does the variable ?flow? measure? Hint: The spreadsheet contains a formula that computes flow.
   • Interpret the two estimated slope coefficients of your regression. Hint: Keep in mind that this is a multivariate regression.

See Assignment_7_data.xlsx