Part a to e have been solved. kindly assist with part fghi.

f. Using regression analysis, calculate the factor betas of each stock associated with each of

the common risk factors. Which of these coefficients are statistically significant?

g. How well does the factor model explain the variation in portfolio returns? On what basis

can you make an evaluation of this nature?

h. Suppose you are now told that the three factors in the table represent the risk exposures

in the Fama-French characteristic-based model (i.e., excess market, SMB, and

HML). Based on your regression results, which one of these factors is the most likely to

be the market factor? Explain why.

i. Suppose it is further revealed that Factor 3 is the HML factor. Which of the two portfolios

is most likely to be a growth-oriented fund and which is a value-oriented fund?

Explain why.

a. Compute the average monthly return and monthly standard return deviation for each

portfolio and all three risk factors. Also state these values on an annualized basis.

b. Based on the return and standard deviation calculations for the two portfolios from Part

a, is it clear whether one portfolio outperformed the other over this time period?

c. Calculate the correlation coefficients between each pair of the common risk factors (i.e.,

1 & 2, 1 & 3, and 2 & 3).

d. In theory, what should be the value of the correlation coefficient between the common

risk factors? Explain why.

e. How close do the estimates from Part b come to satisfying this theoretical condition?

What conceptual problem(s) is created by a deviation of the estimated factor correlation

coefficients from their theoretical levels?

Period Portfolio A Factor 1 Factor 2 Factor 3 % Portfolio B % 0.00 % % % 1 1.08 0.01 - 1.01 -1.67 2 7.58 6.62 6.89 0.29 -1.23 3 5.03 6.01 4.75 -1.45 1.92 4 0.36 0.66 0.41 0.22 1.16 -1.98 5 -1.58 -2.95 -3.62 4.29 16 4.26 2.39 2.86 -3.40 -1.54 7 -0.75 -2.47 -2.72 4.51 -1.79 8 -15.49 -5.92 5.69 -15.46 4.06 9 6.05 -16.11 5.95 7.11 0.02 -3.76 10 7.70 -2.85 6.75 5.52 3.36 1.36 11 5.86 -3.68 7.76 9.62 12 4.89 5.94 -0.31 -4.95 13 5.25 2.73 3.47 1.15 -6.16 14 -0.55 -4.15 -5.59 1.66 -3.19 5.40 15 2.59 -3.82 -3.04 3.32 4.47 16 2.39 7.26 2.89 2.80 17 -2.87 0.10 -2.39 3.46 3.08 18 6.52 3.66 4.72 3.42 -4.33 19 -3.37 -0.60 -3.45 2.01 0.70 20 -1.16 -1.26 -1.24 -1.48 -4.06 0.15 -1.35 -2.68 21 3.23 3.18 22 6.01 5.29 5.80 -6.53 -3.19 23 2.05 2.28 3.20 7.71 24 7.20 7.09 7.83 6.98 -8.09 -9.05 -0.16 25 -4.81 -2.79 4.08 26 1.00 -2.04 2.55 21.49 -12.03 27 9.05 5.25 5.13 -16.69 7.81 28 -4.31 -2.96 -6.24 -7.53 8.59 29 -3.36 -0.63 4.27 -5.86 5.38 30 3.86 1.80 4.67 13.31 -8.78 Period Portfolio A Factor 1 Factor 2 Factor 3 % Portfolio B % 0.00 % % % 1 1.08 0.01 - 1.01 -1.67 2 7.58 6.62 6.89 0.29 -1.23 3 5.03 6.01 4.75 -1.45 1.92 4 0.36 0.66 0.41 0.22 1.16 -1.98 5 -1.58 -2.95 -3.62 4.29 16 4.26 2.39 2.86 -3.40 -1.54 7 -0.75 -2.47 -2.72 4.51 -1.79 8 -15.49 -5.92 5.69 -15.46 4.06 9 6.05 -16.11 5.95 7.11 0.02 -3.76 10 7.70 -2.85 6.75 5.52 3.36 1.36 11 5.86 -3.68 7.76 9.62 12 4.89 5.94 -0.31 -4.95 13 5.25 2.73 3.47 1.15 -6.16 14 -0.55 -4.15 -5.59 1.66 -3.19 5.40 15 2.59 -3.82 -3.04 3.32 4.47 16 2.39 7.26 2.89 2.80 17 -2.87 0.10 -2.39 3.46 3.08 18 6.52 3.66 4.72 3.42 -4.33 19 -3.37 -0.60 -3.45 2.01 0.70 20 -1.16 -1.26 -1.24 -1.48 -4.06 0.15 -1.35 -2.68 21 3.23 3.18 22 6.01 5.29 5.80 -6.53 -3.19 23 2.05 2.28 3.20 7.71 24 7.20 7.09 7.83 6.98 -8.09 -9.05 -0.16 25 -4.81 -2.79 4.08 26 1.00 -2.04 2.55 21.49 -12.03 27 9.05 5.25 5.13 -16.69 7.81 28 -4.31 -2.96 -6.24 -7.53 8.59 29 -3.36 -0.63 4.27 -5.86 5.38 30 3.86 1.80 4.67 13.31 -8.78