Capm And 3 Factor Model (Fama French) Data Analysis Copenhagen Business School Asset Pricing Assignment 1

1150 words - 5 pages

Asset Pricing: Home Assignment 1
Submitted by: Marc Ercolao, Lennart Janssen, Florian Preis,
Dominik Rappe, and Ludwig Skogman
Question 1
In this section, we regress the excess returns of the S&P 500 on the market risk premium of
the S&P 500 between January 1964 and January 1993. The mean returns of the 25 FF
portfolios, as well as their betas and alphas, are presented in Tables 1 to 3. All the variables in
the following regressions are retrieved from Kenneth R. French’s database using value
weighted monthly average returns. The regressions are executed in STATA.
Table 1. Mean Excess Returns
Low 2 3 4 High
Small 0.29% 0.74% 0.76% 0.96% 1.09%
2 0.40% 0.67% 0.90% 0.96% 1.07%
3 0.44% 0.74% 0.68% 0.89% 1.01%
4 0.46% 0.38% 0.64% 0.79% 0.91%
Big 0.33% 0.34% 0.35% 0.50% 0.61%
Table 2. CAPM Betas
Low 2 3 4 High
Small 1.427 1.253 1.160 1.075 1.108
2 1.436 1.233 1.113 1.041 1.125
3 1.362 1.167 1.035 0.979 1.076
4 1.230 1.136 1.045 0.972 1.091
Big 1.005 0.987 0.868 0.853 0.869
Table 3. Alphas
Low 2 3 4 High
Small -0.300 0.218 0.272 0.516 0.624
2 -0.196 0.153 0.432 0.530 0.603
3 -0.128 0.253 0.250 0.477 0.559
4 -0.057 -0.089 0.207 0.383 0.456
Big -0.092 -0.067 -0.016 0.147 0.248
Question 2
As presented in Table 1, the mean excess returns tend to grow larger in the north-east
direction. More specifically, as firms’ market capitalization decreases and book-to-market
ratio increases, their mean excess return grows. This is consistent with the small-firm effect
and the book-to-market ratio anomalies that are left unexplained while applying the CAPM.
Question 3
As presented in Figure 1, the mean excess returns of the 25 FF portfolios tend to grow larger
as firm size decreases and the book-to-market ratio increases. However, for all observed
portfolios, this relationship is not systematic. For instance, within the range of low book-to-
market portfolios, there is no clear trend of increasing excess returns, given a decreasing firm
Figure 1. Mean Excess Returns Figure 2. Betas
The model, however, exhibits a more compelling, positive relationship between betas of the
25 FF portfolios, given a decreasing firm size and an increasing book-to-market ratio (as
shown in Figure 2). If we imagine the anomaly as a ratio between the excess return and the
given beta for a certain portfolio, it becomes clear that the portfolios within the lowest
valuation quintile exhibits the lowest trade-off between mean excess return and beta.
Therefore, the puzzle lies in the fact that CAPM overestimates betas for firms within the first
and second quintile of the book-to-market ratio.
Question 4
The alpha intercepts capture the anomalies that the CAPM model fails to explain when
regressing the excess return of the portfolios on the market risk premium. If the p-value of an
alpha indicates significance, we fail to reject the null hypothesis and therefore, we have to
question the reliability of CAPM.
Overall, the alphas tend to be significant at higher book-to-market values whereas...

Other Essays On CAPM and 3 Factor Model (Fama French) Data analysis - Copenhagen Business School - Asset Pricing - Assignment 1

Homeostasis and how it effects the body - health science 1 concord high school - assignment

892 words - 4 pages -is-homeostasis/. YourDictionary. “Homeostasis Examples.” YourDictionary, 28 July 2016, khan academy. “Homeostasis.” Khan Academy, Khan Academy, and-homeostasis/a/homeostasis. BiologyWise Staff. “A Brief Introduction to the Levels of Organization of Living Things.” BiologyWise, BiologyWise, 6 Aug. 2017

Assignment 1- The Achievement of Desire - Great Bridge High School/ AP Eng 12 - assignment

736 words - 3 pages 1 Gordnier All throughout my life I always felt like I was living in the shadow of my older brother. Because I’m the younger sibling, there was already a preconceived idea of who I was supposed to be and what I was supposed to accomplish based on his previous success. He was a straight A student in the top percentile of his class, charming his teachers with his natural ease in academics. He played soccer and was in the school band, showing off

Should school start at a later time ? - Excelsior/English 1 - Essay/assignment

539 words - 3 pages Ortega 1 Ortega 2 Arielle Ortega Deanie Griffith English 1 February 14, 2018 Should school start at a later time ? Should teenagers start school at a later time? Students have to get the rest they need because of the stress they have from testing, homework, and exhaustion from sports and after school activities. For example students need between 8 and 10 hours of sleep each night, but only 15% are even getting close to that amount. From a

Module1 Assignment explaining the data analysis relations - RES 5043 - Assignment

722 words - 3 pages voluntarily left the profession and finally interviews with school principals. The surveys should garner insight as to why teachers decide to enter the profession but also the reasons as to why former teachers leave. Principal interviews should indicate the reasons from an administrative perspective as to why a large exodus of teachers in common in many districts. Once data from these three sources has been collected, the responses shall be

Discuss the problems which may arise in linkage analysis which uses spatial and temporal data. - Assignment - Assignment

2578 words - 11 pages used in conjunction with general strain theory, the theory becomes stronger. Agnew (2001) argues there are four types of strain that lead to deviant behaviour: (1) unjustness, (2) magnitude or severity, (3) association with low self-control, and (4) the pressure or incentive to engage in criminal behaviours. Using Agnew’s general strain theory can be used to explain homicide by looking at the case of Charles Andrew Williams. At the age of 15

Business analysis and marketing strategy - Canine behaviour - Essay Assignment

4203 words - 17 pages Bishop Burton College Business analysis and marketing strategy FdSc Canine behaviour and training Module: Management of the enterprise Module Code: 93827 Student number: 20129216 Tutor: Lynda Taylor 13th January 2016 Contents List of tables 1.0 Introduction Page 1 2.0 Analytical tools Page 2 2.1 SWOT analysis Page 3 2.2 PESTLE Page 4 3.0 Marketing Page 6 3.1

Team Assignment 1 International Business Communication - MGMT 4510 - Group Assignment

2064 words - 9 pages Team Assignment 1: Cross-Cultural Communication and Manners Group 4: Jennifer Gammon Sarah Mullins Molly Paul Jennifer Saylor Mary Weiss Ashley Welch David Wherry Step 1: Statement of the Problem: Recognition of Decision Requirement In the case of Saving Grace in Haiti, hurricanes hit Haiti and destroyed the Pinnacle community. Saving Grace Ministries has developed a plan to renovate the community. A temporary “tent city” has been created in the

Business Report - Y11 Business Studies - Trinity Grammar School - Assignment

1555 words - 7 pages Report 1 – Operations and Marketing of Sea Treasure Business: Sea Treasure Chinese Restaurant (North Sydney) 1.0 Situational Analysis 1.1 Influences in establishing a SME There are factors that influence a prospective SME owner to start-up a business. These factors include personal qualities, skills, and qualifications. These qualities are attributable to creating a friendly environment, developing interpersonal skills during decision-making

Business Assignment 1 2018 essay - Year 12 - Assignmnet

5683 words - 23 pages Exploring Business Name: Paul Serbuca (12R) course title: Business Btec Level 3 unit title: Exploring Business assessor: Mr. Dagunduro exam number: Report P1 In this assignment I will be considering the purposes of different organisations as well as the various types and ownerships of businesses. I will also look at who the key shareholders are and what influence they have on these organisations. The two organisations I have chosen to compare

unit 1 business environment task 1,2,3 - Business btec level 3 - report

5065 words - 21 pages Task 1, 2 and 3 ASDA Owners The owner of a business is the person who the business belongs to, ASDA is a Walmart business and Walmart is owned by hundreds or maybe even thousands of people as they are the shareholders, anyone can own as if they want to buy shares, these shareholders don’t run the business they just invest their money, ASDA is ran by a board of directors, a group of people who make the big decisions for ASDA. An owner of a

Economics - Company examination - Online business high school - Assignment

561 words - 3 pages . At the end of each day, be sure to save your progress. Review Lesson 4 of the Course Overview for instructions about turning in your assignments. Assignment Questions In Section 1, you learned about economic principles. Now, you'll apply what you learned. 1. Choose a well-known company that you know of, and answer the following questions about it: - Apple Inc. a. Is this mainly a product-based or service-based business? (1.0 points) - Apple Inc

Similar Papers

Business Review, Unit 1 Assignment 3 Palmers Business Assignment

1756 words - 8 pages THE BUSINESS REVIEW. If demands slows in Asda then it means that the business would need to look at just why that as happened. Instead they would first ask the buyers to assess their ranges and just at why they are not selling as well as they should be. For example with their customers they could be going elsewhere. With marketing data it would be able to show just where Asda is going wrong and where they are losing their customers to and for

Marketing Metrics And Pricing Decision S.P.Jain School Of Global Management Assignment

1769 words - 8 pages value of conventional pads. Hence, CMI should consider a price between $550- 650, in order to not exceed the perceived value in mind of the consumer, but at the same time receive a fair value for its breakthrough innovation. Question 3: What should be CMI’s strategic and marketing objectives in introducing the product? A pile driver is a device used to drive piles (poles) into soil to provide foundation support for buildings or large structures

Marketing Metrics And Pricing Decision S.P.Jain School Of Global Management Assignment

1265 words - 6 pages MMPD: SBR3 – Group 4 (Amit, Priyanka, Rubi, Olivia) Question 1: How profitable is the current SKU in the product line for both Heinz and the retailer? - Consider profitability of both regular and promotional prices on a dollar and % basis The above calculation is done by taking regular price as well as promo prices into consideration; the price of each product was spread on per ounce basis and was multiplied by the number of units sold. Based on

The Sun Also Rises Chapters 1 3 Hillsboro High School American Men Assignment

480 words - 2 pages , and I always had a suspicion that perhaps…”( Hemmingway, 12) Jake feels threatened by a superior, composure and it makes him angry. Jake is also a hard worker 1. Discuss the themes of the text through the first 3 chapters. Drinking to fill in time is a big theme in this book. When anything remotely difficult happens, Jake drinks. Traveling for a purpose 2. Discuss/identify the setting of the first 2 chapters. The first two chapters were in the