In this week's case you will eIn this week's case you will evaluate whether or not CAPM holds. That is$,$ does a higher

CAPM beta lead to higher expected returns? Do other factors play a role in explaining

returns?

To evaluate this question, you've been given a dataset which contains monthly excess

market return, as well as the excess return on $25$ portfolios, and SMB and HML factors.

Estimate betas and average returns $($note: in Excel, you can use the function Slope to

estimate coefficients in uni$-$variate regressions$).$ Plot the relationship between betas

and average returns and comment on the result.

What's the market risk premium $($the excess return you obtain for a beta of $1)?$ Is it

significantly different from zero $($use your econometrics knowledge$)?$

Guided by the results obtained when estimating betas, select two portfolios to estimate

the Fama$-$French three factors model. Explain why you conjecture these two portfolio

will yield interesting results. Comment on the results of the regressions, focusing on the

slopes of the factors and the fit of the regression $($note: to run multi$-$variate regressions

in Excel you need to go to: Data $$ Data Analysis $$ Regression. If you cannot find the

Data Analysis button in Data, go to: File $$ Options $$ Add$-$ins $$ Select and activate

Analysis ToolPak$).$valuate whether or not CAPM holds. That is$,$ does a higher

CAPM beta lead to higher expected returns? Do other factors play a role in explaining

returns?

To evaluate this question, you've been given a dataset which contains monthly excess

market return, as well as the excess return on $25$ portfolios, and SMB and HML factors.

Estimate betas and average returns $($note: in Excel, you can use the function Slope to

estimate coefficients in uni$-$variate regressions$).$ Plot the relationship between betas

and average returns and comment on the result.

What's the market risk premium $($the excess return you obtain for a beta of $1)?$ Is it

significantly different from zero $($use your econometrics knowledge$)?$

Guided by the results obtained when estimating betas, select two portfolios to estimate

the Fama$-$French three factors model. Explain why you conjecture these two portfolio

will yield interesting results. Comment on the results of the regressions, focusing on the

slopes of the factors and the fit of the regression $($note: to run multi$-$variate regressions

in Excel you need to go to: Data $$ Data Analysis $$ Regression. If you cannot find the

Data Analysis button in Data, go to: File $$ Options $$ Add$-$ins $$ Select and activate

Analysis ToolPak$).$