Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1. You are provided with a file labelled “Multibetadata12,” with monthly data running from January of 2007 through June of 2012. Use the data to estimate a four-variable model (by using regression analysis) to address the issue of whether more than one factor might help to improve the CAPM. Does more than one factor appear to matter? As always, you will need to test for the significance of the R-squared and the individual coefficients. Note that “Rp-Rf” is a portfolio’s excess returns over the Treasury bill returns  and represents the  dependent variable on an index of equity returns; “Market” is the market’s excess return over the Treasury bill rate of return (i.e., a market effect); “Size” measures the difference in performance between small stocks and large stocks (i.e., a size effect); and “Value” stands for the difference between high  “book-to-market”  stocks and low “book to market” stocks (i.e., a value  effect). Each of these three independent variables should be positively related to Rp-Rf, the portfolio excess return. What do you conclude? Why? 

2. describe what it means to “beat the market.” Why do many individuals - both academic and non-academic believe that such is not systematically possible? Please be thorough. What may move you to temper this view? As part of your response, please provide a brief summary of the last two articles discussed in class.

3. Answer the following problems either separately or as an integrated essay, whichever you prefer.

a. In a file labelled “Complete Data File 3” on Blackboard, you will find monthly rates of return on 370 securities, the rates of return on the S&P 500, and the returns on the three-month U.S. Treasury bill.  An accompanying file lists the securities. The rates of return run from January of 2007 through July of 2012. Please do the following:  (1) for each of 75 securities  that you choose, estimate the single-index model in  excess form  using the returns  from  January of 2006  through December of 2010, 60 observations, and (2) build a mean-variance efficient portfolio (using  the  arithmetic  mean  excess return of each security as the measure of the expected excess return).

b. Following the instructions below, please test the monthly performance of your portfolio against that of the S&P 500 from January of 2012 through July of 2012. In your testing, remember to use the geometric mean and to show your work. Did your portfolio outperform the market? Why or why not?  As part of your discussion, does your portfolio contain any uncomfortably high correlation coefficients? Overall, what do you conclude?

DIRECTIONS FOR TRACKING THE MEAN-VARIANCE PORTFOLIOS

1.  For January of 2012, find the rate of return for security i.

2.  Multiply step 1 by the weight assigned to security i.

3.  Repeat steps one and two for all securities in the mean-variance efficient portfolio.

4.  Add the results in step 3.  This is your portfolio’s return for January.

5.  Multiply security i’s beta by the weight assigned to security i.

6.  Repeat step 5 for all betas in the mean-variance efficient portfolio.

7.  Add the results in step 5.  This is your portfolio’s beta.

8. Subtract January’s risk-free rate of return from step 4. This is your portfolio’s excess return for January.

9.  Divide the result of step 8 by the result of step 7. This is the Treynor measure for January.

10. Repeat steps 1-9 for February through July for all securities in the mean-variance efficient portfolio.

11. Subtract January’s risk-free rate of return from January’s S&P 500 rate of return.

12. Divide step 11 by the S&P 500’s beta (=1).

13. Repeat steps 11 and 12 for February through July.

14. Find the geometric mean of the mean-variance efficient portfolio’s returns from January through July and subtract the geometric mean of the risk-free rates of return from it. Divide the result by step 7, the portfolio’s beta, to get the portfolio’s Treynor measure for January through July. (Note: You will end up with one number.)

15. Find the geometric mean of the S&P 500’s rates of return from January through July and subtract the geometric mean of the risk-free rates of return from it. Divide the result by the S&P 500’s beta to get the S&P 500’s Treynor measure for January through July.

16. Compare the mean-variance efficient portfolio’s Treynor measure, month by month, with the S&P 500’s Treynor measure, month by month, and draw conclusions.

17. Compare the  mean-variance  efficient  portfolio’s Treynor measure computed for  January  through July (i.e., step 14) with the S&P 500’s Trey nor measure computed for January  through July  (i.e., step 15) and draw conclusions.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91564

Have any Question? 


Related Questions in Basic Finance

We are going through financial crisis seven years have

We are going through financial crisis. Seven years have passed and we are still in recovery stage. Based on the analysis in the class, can you suggest and elaborate an alternative way to deal with the financial crisis?

1 show that when you apply node splitting to a nonreducible

1. Show that when you apply node splitting to a nonreducible ow graph, and then perform T1-T2 reduction on the resulting split graph, you wind up with strictly fewer nodes than you started with. 2. What happens if you ap ...

Assume that you are the manager of a financially distressed

Assume that you are the manager of a financially distressed corporation, with $1.5 million in debt outstanding, which will mature in two months. Your firm currently has $1 million cash on hand. Assuming that you are oper ...

Examine the following pairs of calls which differ only by

Examine the following pairs of calls, which differ only by exercise price. Determine whether any violate the rules regarding relationships between American options that differ only by exercise price a. August 155 and 160 ...

1 define the term financial intermediary what role do

1. Define the term "financial intermediary." What role do financial intermediaries play in U.S. corporate finance? How does this compare with the role of non-U.S. financial intermediaries? 2. Discuss the U.S. banking sys ...

1 describe how and why a bonds interest rate risk is

1. Describe how and why a bond's interest rate risk is related to its maturity. 2. Explain why municipal bonds can offer lower interest rates than equally risky corporate bonds. 3. Explain why the yield to maturity on a ...

Potters violin co has just issued nonconvertible preferred

Potter's Violin Co. has just issued nonconvertible preferred stock with a par value of $100 and an annual dividend rate of 18.66 percent. The preferred stock is currently selling for $119.42 per share. which rate of retu ...

1 is the presentation of a personal income statement

1. Is the presentation of a personal income statement appropriate? 2. GAAP as they apply to personal financial statements use the cash basis. Comment. 3. Is the concept of working capital used with personal financial sta ...

An article observes the federal reserve announced that it

An article observes: "The Federal Reserve announced that it would open currency swap lines-in essence, printing dollars and exchanging them for euros. . . ." Why would the Fed and the European Central Bank enter into suc ...

Atlantis reit expects an income of 800 per share this

Atlantis REIT expects an income of $8.00 per share. This includes a deduction of $2.00 per share for depreciation. Atlantis did not have any gains from the sale of real estate. Its properties are mainly apartments, and y ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen