Question: Again, consider the 10 excess stock returns in the file m-excess-c10sp9003.txt. Perform a principal component analysis on the returns and obtain the scree plot. How

Again, consider the 10 excess stock returns in the file m-excess-c10sp9003.txt. Perform a principal component analysis on the returns and obtain

g 0.4 -0.2 0.0 0.2 0.4 F.5 0 Factor returns 10 20

the scree plot. How many common factors are there? Why? Interpret the common factors.

g 0.4 -0.2 0.0 0.2 0.4 F.5 0 Factor returns 10 20 0.4 0 10 20 30 0 10 20 30 Figure 9.8 Time plots of factor returns derived from applying asymptotic principal component analysis to monthly simple returns of 40 stocks. Sample period is from January 2001 to December 2003. 30

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