Subject Code : ECON334
Assignment Task:
Assignment Task:

Assessment Description

The EViews workfile “Assignment_Workfile.wf1” located under “Assignment” heading on iLearn contains five daily return series for the period 3 January 2000 – 29 December 2017 (totaling 4528 observations). (Note: In order to obtain an image of a table or graph in EViews, you need to click on the “freeze” tab. If you are using AppStream to do your assignment, please see the document ‘How to save images from AppStream’ on our iLearn site under Assignment. Alternatively, you may prefer to use iLab which is available until the end of the year in which case “freeze” the table or graph in EViews, then copy and paste the table or graph into your Word document). 

The following daily return series appear in the file: 

A. Daily returns on two portfolios of stocks: 

• small _ hibm (A portfolio consisting of all NYSE, AMEX, and NASDAQ stocks which are characterized as small companies with high book-to-market equity ratios). 

• Mkt ( A-weighted portfolio of all stocks in the U.S. market)

 B. Daily returns on two pricing factors from Fama and French (1996)

• hml (High minus Low) 

• smb (Small minus Big)

Questions

1. What are the pricing factors hml and smb ? (Hint: To read about the factors, hml and smb , search under Fama-French three factor model. You may also want to search for textbook expositions of the Fama-French three factor model, e.g. in the textbook Investments by Bodie, Kane and Marcus of which there are several editions).

2. Open the EViews workfile “Assignment_Workfile.wf1”. Create a new variable ( mkt _ rf ) for excess returns on the market over the risk free rate, also known as the daily market risk premium, i.e. mkt _ rf = mkt − rf . (Hint: If you do this correctly the first value of mkt _ rf will be − 0.710). Next, create a new variable for excess returns on the small _ hibmportfolio, i.e. sh _ rf = small _ hibm − rf . (Hint: If you do this correctly the first value of sh _ rf will be − 0.531).

3. Provide a graph of rf and comment on any interesting features you see in the graph. 

(The horizontal axis of the graph shows the observation number. For example, to determine the date corresponding to observation 2010, click on the date in the workfile and you will see observation 2010 corresponds to date 2007-12-31 i.e. the 31st of December 2007. You may want to use this feature when you comment on this graph and others you may do in the assignment).

4. Provide a graph and descriptive statistics for both sh _ rf and mkt _ rf returns and compare them. Are there any important differences between them over the full sample?

5. Repeat the exercise from part 4 for the shorter sample period: 3 January 2000 – 31 December 2007. (Hint: This sample corresponds to observations 1 to 2010. Click on the “sample” tab and in the sample range pairs box and type 1 2010). Comment on the performance of the sh _ rf portfolio relative to the mkt _ rf portfolio during this period.

 

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  • Uploaded By : Alex Cerry
  • Posted on : April 11th, 2019

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