Suppose you are considering the purchase of shares in the XYZ mutual fund. As part of your investment analysis, you regress XYZ's monthly returns for the past five years against the three factors specified in the Fama and French models. This procedure generates the following coefficient estimates: market factor = 1.2, SMB factor = −0.3, HML factor = 1.4. Explain what each of these coefficient values means. What types of stocks is XYZ likely to be holding?
Answer to relevant QuestionsIt is widely believed that changes in certain macroeconomic variables may directly affect performance of an equity portfolio. As the chief investment officer of a hedge fund employing a global macro-oriented investment ...Consider the following data for two risk factors (1 and 2) and two securities (J and L):λ0 = 0.05 bJ1 = 0.80λ1 = 0.02 bJ2 = 1.40λ2 = 0.04 bL1 = 1.60 bL2 = 2.25a. Compute the expected returns for both securities.b. ...Discuss briefly two decisions that require the analysis of financial statements.Why is the analysis of growth potential important to the common stockholder? Why is it important to the debt investor?Given the following balance sheet, fill in the ratio values for 2013 and discuss how these results compare with both the industry average and prior average performance of Sophie Enterprises.SOPHIE ENTERPRISES CONSOLIDATED ...
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