Investments | Project 2
Using the data contained in the Project 2 Data file on Blackboard, estimate the Fama and French 3-factor model for each of the two stocks assigned to you. The file contains monthly returns of the risk-free asset, the excess returns of the market index, the returns on the small-minus-big and highminus-low factor mimicking portfolios and the monthly returns of different stocks. You need to estimate the model only for the two stocks that appear under your name.
If you are unsure how to estimate or interpret the model, follow the steps in the Project 2 Example file on Blackboard. Prepare a professional report with the items in the following order:
- Start a Microsoft Word file for your report.
- First, add a description of your companies and their main line of business to your report. In addition, report the following (search for your tickers in Yahoo Finance and look under the Statistics tab):
- Market Capitalization (Market Cap) of your companies.
- Price-to-Book Ratio (Price/Book) of your companies.
- Second, answer the following questions based on your regression results and add to your report:
- What are the alphas of your stocks? If either is not statistically significant at the 5% level, then indicate so.
- What are the size factor betas of your stocks? If either is not statistically significant at the 5% level, then indicate so.
- What are the value factor betas of your stocks? If either is not statistically significant at the 5% level, then indicate so.
- Which stock had a stronger exposure to the size factor?
- Which stock had a stronger exposure to the value factor?
- Are the differences in the size and value factor betas of your stocks consistent with the differences in their Market Cap and Price/Book? Note that Price/Book is the opposite of Book-to-Market Ratio.
- Third, clearly label your regression output with the stock ticker for each of your two stocks and then add it to your report. DO NOT include the raw data used in you analysis!
- Print the Microsoft Word file and submit in class on the due date.
Last Updated on February 11, 2019 by Essay Pro