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a)

intercept mrp smb hml
0.44019 0.79376 0.05243 -0.11812
-0.1488 1.1116 -0.1197 -0.3328

The above are coefficients estimates obtained by running the Fama-French three factor model on two different assets.

One of the assets is a portfolio of stocks from the consumer goods industry, and another is a portfolio of stocks from the tech industry. Deduce which portfolio is which, given your knowledge of the differing characteristics of the two industries??

b) On the following page is an excerpt of a table replicated from The cross section of expected stock returns (Journal of Finance, Fama and French(1992)).

Interpret the relevant section in the table and explain the manifestation of why Fama and French suggest that the CAPM should be augmented with Book-to-Market to describe stock returns in the cross-section.

 

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92766910

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