Problem 3: Risk management in Fama French model Consider the trading strategies with the following Fama French regressions a) Consider trading strategy 1/2(R1Rf)+1/2(R2Rf). What does this trading strategy involve? i.e. explain where it gets the money from and where it invests into. b) What would be Fama French pricing error and risk factor exposures for this strategy? c) Assume you use VOO to COMPLETELY hedge your market exposure in b) and the value of your position is $100,000. Using the current price of VOO how many contracts of VOO you should long/short? VOO price # Shares Problem 3: Risk management in Fama French model Consider the trading strategies with the following Fama French regressions a) Consider trading strategy 1/2(R1Rf)+1/2(R2Rf). What does this trading strategy involve? i.e. explain where it gets the money from and where it invests into. b) What would be Fama French pricing error and risk factor exposures for this strategy? c) Assume you use VOO to COMPLETELY hedge your market exposure in b) and the value of your position is $100,000. Using the current price of VOO how many contracts of VOO you should long/short? VOO price # Shares