3. Suppose we analyze a fund manager using a 4-factor model. That is, we evaluate the manager using an APT model with the market factor, the size factor (SMB), the book-to-market factor (HML) and a "momentum factor" (WML). The market portfolio is the simply the value-weighted average of all stocks. The factor mimicking portfolios for the SMB and HML are same as in the Fama-French model. The FMP for the momentum factor is a portfolio that goes long past 6- months winners and shorts past 6-month losers. Suppose that the risk premia for the market factor is 6% per year, the risk premia for SMB is 4% per year, the risk premia for HML is 6% per year and the risk premia for WML is 8% per year. The risk-free rate is 3% per year. Suppose we regress the excess return of the fund on the excess return of the market portfolio, SMB, HML and WML using the past 5 years worth of monthly data. We find that the factor loadings are 1.10 on the market, -0.20 on SMB, 0.10 on HML and 0.25 WML. Over this period, the fund manager has achieved a return of 11.0% where as the market has returned 9.0% (6% above the risk-free rate). a) According to 4-factor model, has this fund manager produced superior returns? b) Rather than investing in the fund, construct a portfolio that invests in the factor mimicking portfolios that produces the same risk profile as the fund. (That is, you want a portfolio that has the same risk loadings as the fund itself) Assume that