Question
Using the benchmark, Fund and risk free historical returns (table below) conduct a top down analysis of its returns. a) First you will run a
Using the benchmark, Fund and risk free historical returns (table below) conduct a top down analysis of its returns.
a) First you will run a regression using the excess monthly returns of the fund against the excess returns of the benchmark (monthly excess returns for fund or benchmark = fund or benchmark returns risk-free return). Use the coefficients to obtain Jensens alpha and the tracking error. Further, analyse the significance of Alpha to explain Fund Managers skill.
b) Calculate the average return for both the fund and the benchmark and this provides you with the numerator value for Treynors and Sharpes ratios. The denominator for Treynor ratio is the coefficient of the independent variable. The denominator for the Sharpes ratio is the standard deviation of the excess returns.
BM Date Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 rf -1.29 -1.46 -0.20 0.61 0.16 0.43 0.71 1.17 -0.92 0.23 -0.02 -0.34 1.09 0.86 -0.56 -0.26 0.29 0.80 -0.34 0.67 0.45 0.15 0.80 -0.46 0.49 0.23 1.48 0.63 0.93 1.79 0.29 Fund 1.18 -0.53 3.82 3.11 2.28 -0.19 -2.93 2.52 -2.03 1.39 0.49 4.02 1.60 1.71 -2.20 1.51 -3.26 2.52 1.12 3.25 -5.35 1.20 0.31 -7.54 -1.94 -1.08 2.83 6.71 -0.25 3.20 -0.17 2.74 4.14 -1.99 2.21 3.12 0.24 -2.89 0.30 -0.51 0.63 0.03 2.62 1.62 1.77 -1.25 0.36 -3.84 2.89 1.16 3.07 0.01 1.43 -1.13 -7.86 -2.33 -0.18 2.95 5.54 0.86 1.24 1.52 BM Date Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 rf -1.29 -1.46 -0.20 0.61 0.16 0.43 0.71 1.17 -0.92 0.23 -0.02 -0.34 1.09 0.86 -0.56 -0.26 0.29 0.80 -0.34 0.67 0.45 0.15 0.80 -0.46 0.49 0.23 1.48 0.63 0.93 1.79 0.29 Fund 1.18 -0.53 3.82 3.11 2.28 -0.19 -2.93 2.52 -2.03 1.39 0.49 4.02 1.60 1.71 -2.20 1.51 -3.26 2.52 1.12 3.25 -5.35 1.20 0.31 -7.54 -1.94 -1.08 2.83 6.71 -0.25 3.20 -0.17 2.74 4.14 -1.99 2.21 3.12 0.24 -2.89 0.30 -0.51 0.63 0.03 2.62 1.62 1.77 -1.25 0.36 -3.84 2.89 1.16 3.07 0.01 1.43 -1.13 -7.86 -2.33 -0.18 2.95 5.54 0.86 1.24 1.52Step by Step Solution
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