With your three largest positions and the data from the Excel file, solve the following problems: a) Calculate a, using the single-factor model. b) Estimate their risk (systematic and firm-specific) according to the single-factor model. c) Calculate the weights of the stocks in your portfolio. Remember, stocks you're selling short have negative weights, and the weights need to sum up to one. d) Produce a return time series for your portfolio of the largest three stocks, using Rp(t) = WiRi(t) + W2R2+W3R3. Estimate your portfolio's sensitivity to Fama-French's three factors, that is, run the regression Rp(t) = ap + BMRM(t) + BSMLSML(t) + BHMLHML(t) + ep. Remember: Bm is a proxy to how much market risk your portfolio carries; BsML is your exposure to small over big firms; BHML is your exposure to firms with a high book value compared to their market capitalization. These three betas are assumed to be non-diversifiable risk factors, and in the long run investors should be rewarded for their risk of having greater betas. e) Analyze your results. This includes, but is not limited to: classifying your portfolio in terms of aggressiveness, small vs large cap, value vs growth; identifying which of your holdings potentially contribute to the portfolio Classification how; going back to your portfolio philosoph statement and discussing if your holdings reflect your investment goal; using the expected values of RM, SML, HML to compute the expected return of your portfolio in the coming mont With your three largest positions and the data from the Excel file, solve the following problems: a) Calculate a, using the single-factor model. b) Estimate their risk (systematic and firm-specific) according to the single-factor model. c) Calculate the weights of the stocks in your portfolio. Remember, stocks you're selling short have negative weights, and the weights need to sum up to one. d) Produce a return time series for your portfolio of the largest three stocks, using Rp(t) = WiRi(t) + W2R2+W3R3. Estimate your portfolio's sensitivity to Fama-French's three factors, that is, run the regression Rp(t) = ap + BMRM(t) + BSMLSML(t) + BHMLHML(t) + ep. Remember: Bm is a proxy to how much market risk your portfolio carries; BsML is your exposure to small over big firms; BHML is your exposure to firms with a high book value compared to their market capitalization. These three betas are assumed to be non-diversifiable risk factors, and in the long run investors should be rewarded for their risk of having greater betas. e) Analyze your results. This includes, but is not limited to: classifying your portfolio in terms of aggressiveness, small vs large cap, value vs growth; identifying which of your holdings potentially contribute to the portfolio Classification how; going back to your portfolio philosoph statement and discussing if your holdings reflect your investment goal; using the expected values of RM, SML, HML to compute the expected return of your portfolio in the coming mont
