Assignment 1. Asset Pricing Methodology (50 marks] Objective: Form 10 decile portfolios by sorting 100 individual assets on their market betas. Market betas estimated using the past 5 year data, and portfolios are held for a year until rebalanced. Average returns and CAPM alphas are computed for a long-short portfolio as well as each decile portfolio Data: (1) Monthly returns on 100 individual assets for 10 years (MS Excel CSV file named RET). (2) Monthly returns on the market for 10 years (MKTRET). (3) Monthly risk-free rate for 10 years (RF). All returns are in a percentage form. Missing data are indicated by -99.99 or -999. MATLAB Task: 1. Sort the assets to construct 10 decile portfolios. [20 marks] To do so, take the following three steps: At the beginning of every year starting from year 6, (1) Estimate market betas for each asset using its monthly excess returns (and excess market returns) for the past 5 years. Store the value of market betas in the MATLAB matrix (5 by 100) called Betas, where Betas(m,n) indicates the beta of n-th asset for year m+5. Print the matrix Betas and copy in your MATALB code here. Explain your codes and results. [7 marks] (2) Sort 100 assets in the ascending order of their betas and store them in the MATALB matrix (5 by 100) called SortBetas, where SortBetas(m,n) indicates the asset with the n-th smallest betas for year year m+5. Print the matrix SortBetas and copy in your MATALB code here. Explain your codes and results. [6 marks] (3) Identify the constituent of beta decile portfolios by containing the equal number of assets in each portfolio. Store the result in the MATALB cell (5 by 10) called PFConst, where PFConst(m,n) contains the assets that constitute the n-th beta decile portfolio for year m+5. 1st (10th) decile portfolio includes the smallest (largest) betas. Print the matrix PF Const and copy in your MATALB code here. Explain your codes and results. [7 marks] Assignment 1. Asset Pricing Methodology (50 marks] Objective: Form 10 decile portfolios by sorting 100 individual assets on their market betas. Market betas estimated using the past 5 year data, and portfolios are held for a year until rebalanced. Average returns and CAPM alphas are computed for a long-short portfolio as well as each decile portfolio Data: (1) Monthly returns on 100 individual assets for 10 years (MS Excel CSV file named RET). (2) Monthly returns on the market for 10 years (MKTRET). (3) Monthly risk-free rate for 10 years (RF). All returns are in a percentage form. Missing data are indicated by -99.99 or -999. MATLAB Task: 1. Sort the assets to construct 10 decile portfolios. [20 marks] To do so, take the following three steps: At the beginning of every year starting from year 6, (1) Estimate market betas for each asset using its monthly excess returns (and excess market returns) for the past 5 years. Store the value of market betas in the MATLAB matrix (5 by 100) called Betas, where Betas(m,n) indicates the beta of n-th asset for year m+5. Print the matrix Betas and copy in your MATALB code here. Explain your codes and results. [7 marks] (2) Sort 100 assets in the ascending order of their betas and store them in the MATALB matrix (5 by 100) called SortBetas, where SortBetas(m,n) indicates the asset with the n-th smallest betas for year year m+5. Print the matrix SortBetas and copy in your MATALB code here. Explain your codes and results. [6 marks] (3) Identify the constituent of beta decile portfolios by containing the equal number of assets in each portfolio. Store the result in the MATALB cell (5 by 10) called PFConst, where PFConst(m,n) contains the assets that constitute the n-th beta decile portfolio for year m+5. 1st (10th) decile portfolio includes the smallest (largest) betas. Print the matrix PF Const and copy in your MATALB code here. Explain your codes and results. [7 marks]