Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

show your steps and answers in MS Excel (.xlsx file ONLY and DO NOT use .csv file). Make sure your Excel file contains formulas used

show your steps and answers in MS Excel (.xlsx file ONLY and DO NOT use .csv file). Make sure your Excel file contains formulas used for calculation. You may also use MS Word/PDF whenever necessary.)

image text in transcribed
18. Combine returns of stock X and '1' from the question above with FamaFrench risk factors (You may directly use the risk factors data you downloaded during class. Hint: also available on Professor Ken French's website.) (a) Pick one stock (X or Y) and run a CAPM regression using data from January 2001 to December 2022. (2 points) (b) From this CAPM regression output, what is the alpha? Is this alpha signicantly different from zero? Why? (4 points) (c) What does alpha mean economically (i.e., what does alpha measure)? (2 points) ((1) From the CAPM regression output. what is the stock's beta? Is the stock's beta signicantly different from zero? Why? (4 points} (e) From the CAPM regression output, is the stock more or less risky than the market portfolio? Why or why not? (4 points) (f) What does beta mean economically (i.e., what does beta measure)? 15 beta constant over time? (4 points) (g) Run a Fama-French 4factor model for the same stock and compare your results with the C APM regression above. Does adding additional factors improve your model's performance? Explain. (4 points) (h) Explain to your investors the intuition and interpretation of these additional factors in the Fama-French 4-factor model. For example, how are these factors calculated and what do they capture? (6 points)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting Volume 2

Authors: Thomas H. Beechy

5th Edition

0071091319, 978-0071091312

More Books

Students also viewed these Accounting questions

Question

7. One or other combination of 16.

Answered: 1 week ago