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Using Net Asset Value (NAV) and other relevant data, you investigate the performance of three fund managers: M, P, and S. You utilize the Fama-French

Using Net Asset Value (NAV) and other relevant data, you investigate the performance of three fund managers: M, P, and S.

You utilize the Fama-French 3 Factor model for all fund managers:

rpt-rft = p + 1pMRPt + 2pSMBt + 3pHMLt + pt

Where

rpt = portfolio return at month-t

MRP = rmt-rft

SMB = Small minus Big

HML = High minus Low

rft = riskless return at month-t

rmt = market return at month-t

pt = regression residuals which are expected to be white noise

The regression results are presented in Table 1.

Tabel 1. Regression results of M, P, and S Funds based on Fama-French Three Factor Model Funds (all necessary auto regressive terms are already applied but not reported). Note: MRP = rmt-rft; SMB=Small minus Big; HML=High minus Low

M

Coefficient

(Standard Error)

P

Coefficient

(Standard Error)

S

Coefficient

(Standard Error)

Intercept

-0.0005

(0.0011)

0.0069

(0.0034)

0.0016

(0.0013)

MRP

1.0286

(0.0198)

0.8572

(0.0502)

1.0104

(0.0234)

SMB

0.0888

(0.0382)

-0.2345

(0.1058)

0.0725

(0.0449)

HML

-0.0063

(0.0259)

0.2195

(0.0658)

0.0065

(0.0306)

Standard Error of

Regression

0.0109

0.0254

0.0128

Adjusted-R2

0.9750

0.8783

0.9650

What is the information ratio of Fund S?

Answer 1Choose...0.5/0.25/0.125/P/S/M

Which fund performs the worst?

Answer 2Choose...0.5/0.25/0.125/P/S/M

Which fund(s) generate significant abnormal return (more than the expected return based on FF3F Model)? Hint: you must calculate the t-statistics.

Answer 3Choose...0.5/0.25/0.125/P/S/M

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