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Problem 7-09 Suppose that you have estimated the Tams-french three-factor and four-factor models for three different stocks: OCD, FGHI, and JKL. Specifically, using retum data
Problem 7-09 Suppose that you have estimated the Tams-french three-factor and four-factor models for three different stocks: OCD, FGHI, and JKL. Specifically, using retum data from 2005 to 2009, the following equations were est mated : Three-Factor Model: DCD:(CR) - REN] = (0.979)(AM) - (-0.014XASNU) + (-0.377) ML) PGH (CR) - RPK] - (1.057)(AM) - (-0.009XASNO) + (0.38) AMMC) JKI: (GR) - RFR] - (1.148)(AM) - 0.52XASM) + (0.502.HM) ECD:(BR) -RF8] - (1.001AM) (0.01 XASMA) [ 0.320/MMK) 0.102XUMOM) FCHTER) - RFS] - (1.119(M) + 0.042MASKB) 0.498) JUML) + 10.161)UMOM) JKL: CER) - RFR - (1.022(M) + {0.532XASMB) + 10.322) AHML) +-0.309):MCM) s. You have to cstimated factor risk premis over a recent 15-year period as: M - 7.31 percent, SMS-1.95 percent, HML - 4.31 percent, and JOM - 4.97 percent. Use these cstimated rik premia along with two factor modes estimated to calculate the expected exccnctums for the three stocks. Raund your answer to two decimal places. Three Four- factor factor model model IKI: 2 1 b. Suppe that you have alwa estimated historical Partur risk prices for two different time frames: (1) 30 ywuur (AN-7.06 rant, ASME - 5.52 cent and MMI - 5.18 ant, and 2) 0-year per CAM - 7.3 CanASMB - 3.16 Canland AMML - 5.00CH). Call the expected excess returns for LCD, and JKL usng both of these alternative sets of factor risk premii in car with the three-factor nisl model. Round your answer to two decimal places 30-year B0-year period period BCD: 5 % FGH: 95 % JKL: c. You non also consider historical estimates for the MOM is factor over the two additional time frames: () ANOM - 7.99 percent (20-year eenva), and (2) AMOM-9.70 percent 180-year period. Using this additional information, calculate the expected excess retums for BCD, FGH, and KL in conjunction wis the four factor risk madal. Round your asncrs to two decimal places. 30-year 80-year period period IKL: d. De all of the as.ccted excess returns you cakulated in part ) and part(b) make sense lot. Idently which ones seem incontent wihal pricing theory and disass why. The excess returns for -Select- for all periods seem moderately large. This is partly due to the fact that the regressions urlike factor risk prema were estimated using data from much -Select- periods. Problem 7-09 Suppose that you have estimated the Tams-french three-factor and four-factor models for three different stocks: OCD, FGHI, and JKL. Specifically, using retum data from 2005 to 2009, the following equations were est mated : Three-Factor Model: DCD:(CR) - REN] = (0.979)(AM) - (-0.014XASNU) + (-0.377) ML) PGH (CR) - RPK] - (1.057)(AM) - (-0.009XASNO) + (0.38) AMMC) JKI: (GR) - RFR] - (1.148)(AM) - 0.52XASM) + (0.502.HM) ECD:(BR) -RF8] - (1.001AM) (0.01 XASMA) [ 0.320/MMK) 0.102XUMOM) FCHTER) - RFS] - (1.119(M) + 0.042MASKB) 0.498) JUML) + 10.161)UMOM) JKL: CER) - RFR - (1.022(M) + {0.532XASMB) + 10.322) AHML) +-0.309):MCM) s. You have to cstimated factor risk premis over a recent 15-year period as: M - 7.31 percent, SMS-1.95 percent, HML - 4.31 percent, and JOM - 4.97 percent. Use these cstimated rik premia along with two factor modes estimated to calculate the expected exccnctums for the three stocks. Raund your answer to two decimal places. Three Four- factor factor model model IKI: 2 1 b. Suppe that you have alwa estimated historical Partur risk prices for two different time frames: (1) 30 ywuur (AN-7.06 rant, ASME - 5.52 cent and MMI - 5.18 ant, and 2) 0-year per CAM - 7.3 CanASMB - 3.16 Canland AMML - 5.00CH). Call the expected excess returns for LCD, and JKL usng both of these alternative sets of factor risk premii in car with the three-factor nisl model. Round your answer to two decimal places 30-year B0-year period period BCD: 5 % FGH: 95 % JKL: c. You non also consider historical estimates for the MOM is factor over the two additional time frames: () ANOM - 7.99 percent (20-year eenva), and (2) AMOM-9.70 percent 180-year period. Using this additional information, calculate the expected excess retums for BCD, FGH, and KL in conjunction wis the four factor risk madal. Round your asncrs to two decimal places. 30-year 80-year period period IKL: d. De all of the as.ccted excess returns you cakulated in part ) and part(b) make sense lot. Idently which ones seem incontent wihal pricing theory and disass why. The excess returns for -Select- for all periods seem moderately large. This is partly due to the fact that the regressions urlike factor risk prema were estimated using data from much -Select- periods
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