Discuss the differences between the results of the 1-factor and 3-factor asset pricing models. 

1. Run the 1-factor (CAPM), and 3-factor regressions for each of the two mutual funds. How do you interpret the results? -- Please show how to run the regressions

 

2. Discuss i, i, ci, and di (sign, magnitude, and statistical significance). Note: i is the Rm-RF coefficient (beta), ci is the SMB coefficient, and di is the HML coefficient. i is the intercept of the regression line and its interpretation relates to the issue of market efficiency.

Remember to show your working out, including the regression outputs.

	VUVLX-Rf	VSMAX-Rf	Rm-RF	SMB	HML
Jan-14	-2.76%	-2.05%	-3.32%	0.59%	-2.09%
Feb-14	4.68%	5.07%	4.65%	0.13%	-0.40%
Mar-14	2.71%	-0.32%	0.43%	-1.17%	5.08%
Apr-14	0.49%	-2.31%	-0.19%	-4.17%	1.14%
May-14	1.77%	1.17%	2.06%	-1.89%	-0.27%
Jun-14	2.28%	5.00%	2.61%	3.08%	-0.74%
Jul-14	-2.46%	-4.94%	-2.04%	-4.25%	0.01%
Aug-14	4.27%	5.00%	4.24%	0.29%	-0.58%
Sep-14	-2.25%	-5.32%	-1.97%	-3.79%	-1.23%
Oct-14	2.36%	4.49%	2.52%	3.79%	-1.68%
Nov-14	2.07%	0.99%	2.55%	-2.31%	-2.99%
Dec-14	0.95%	1.25%	-0.06%	2.87%	2.06%
Jan-15	-2.90%	-2.15%	-3.11%	-0.86%	-3.47%
Feb-15	4.10%	5.84%	6.13%	0.20%	-1.79%
Mar-15	-0.67%	1.20%	-1.12%	3.04%	-0.46%
Apr-15	0.28%	-1.69%	0.59%	-3.02%	1.86%
May-15	1.69%	2.03%	1.36%	0.76%	-1.37%
Jun-15	-1.67%	-0.87%	-1.53%	2.87%	-0.79%
Jul-15	0.56%	-0.29%	1.54%	-4.55%	-4.12%
Aug-15	-6.01%	-5.82%	-6.04%	0.40%	2.68%
Sep-15	-1.55%	-4.50%	-3.08%	-2.78%	0.52%
Oct-15	6.80%	5.70%	7.75%	-2.16%	-0.08%
Nov-15	0.63%	1.81%	0.56%	3.34%	-0.52%
Dec-15	-2.33%	-4.19%	-2.17%	-2.98%	-2.58%
Jan-16	-6.45%	-7.66%	-5.77%	-3.43%	2.10%
Feb-16	-0.02%	0.90%	-0.07%	0.94%	-0.48%

Answer rating: 100% (QA)

To analyze the differences between the 1factor and 3factor asset pricing models we need to run regression analyses using the CAPM 1factor model and the 3factor model The 1factor model includes only th... View the full answer