Question
Suppose that you run regressions of the returns of various portfolios on either the CAPM (excess market returns only), the Fama-French 3-Factor Model (excess market
Suppose that you run regressions of the returns of various portfolios on either the CAPM (excess market returns only), the Fama-French 3-Factor Model (excess market return, SMB and HML) and a 4-Factor Model (excess market return, SMB, HML and momentum). Which results would you expect to hold true (if any)?
i. A portfolio of value stocks will have a negative alpha under the CAPM
ii. A portfolio of growth stocks will have a negative alpha under both the CAPM and the Fama-French 3-Factor Model.
iii. A portfolio of stocks with high returns over the past 2 to 12 months will have a positive alpha under the Fama-French 3-Factor model.
iv. A portfolio of stocks with negative returns over the past 2 to 12 months will have a negative alpha under the CAPM, the Fama-French 3-Factor Model, and the 4-Factor model.
v. A portfolio of value stocks will have a positive alpha under the CAPM, but a zero alpha under the Fama-French 3-Factor Model.
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