OLS estimation of a Fama-French three-factor regression in R yields the following results: RXdAuto = −0.33 (0.14) + 1.19 (0.03) MKT + 0.11 (0.05) SMB + 0.57 (0.05) HML, R2 = 0.62, where RXAuto is the excess return on an automobile industry portfolio (in percent) and MKT, SMB, and HML are the returns on the market, size, and value factors, respectively (also in percent).

(a) Does the automobile industry portfolio evince significant exposure to the size factor? What does the estimated coefficient on SMB tell you about the nature of the stocks contained in the automobile portfolio?

(b) Does the automobile industry portfolio evince significant exposure to the value factor? What does the estimated coefficient on HML tell you about the nature of the stocks contained in the automobile portfolio?

(c) Do the regression results support the adequacy of the Fama-French three-factor model for capturing systematic risk?

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a The estimated coefficient on SMB is significant at a 5 level indicating that the automobile ... View the full answer