Question: please help starting at 2 and 2 is 3 risk factor model. Suppose that you have estimated the FamaFrench three-factor and four-factor models for three
please help starting at 2 and 2 is 3 risk factor model.
Suppose that you have estimated the FamaFrench three-factor and four-factor models for three different stocks: BCD, FGH, and JKL. Specifically, using return data from 2005 to 2009, the following equations were estimated:
Three-Factor Model: BCD:[E(R) - RFR] = (0.953)(M) + (-0.008)(SMB) + (-0.391)(HML) FGH:[E(R) - RFR] = (1.058)(M) + (-0.064)(SMB) + (0.361)(HML) JKL:[E(R) - RFR] = (1.191)(M) + (0.551)(SMB) + (0.487)(HML)Four-Factor Model: BCD:[E(R) - RFR] = (1.006)(M) + (-0.007)(SMB) + (-0.338)(HML) + (0.078)(MOM) FGH:[E(R) - RFR] = (1.134)(M) + (-0.048)(SMB) + (0.484)(HML) + (0.169)(MOM) JKL:[E(R) - RFR] = (1.019)(M) + (0.526)(SMB) + (0.364)(HML) + (-0.261)(MOM)- You have also estimated factor risk premia over a recent 15-year period as: M = 7.33 percent, SMB = 2.08 percent, HML = 4.41 percent, and MOM = 4.95 percent. Use these estimated risk premia along with two factor models estimated to calculate the expected excess returns for the three stocks. Round your answers to two decimal places.
Three-factor modelFour-factor modelBCD: % %FGH: % %JKL: % %
2- Suppose that you have also estimated historical factor risk prices for two different time frames: (1) 30-year period: (M = 7.04 percent, SMB = 1.40 percent, and HML = 5.31 percent), and (2) 80-year period: (M = 8.01 percent, SMB = 3.69 percent, and HML = 5.01 percent). Calculate the expected excess returns for BCD, FGH, and JKL using both of these alternative sets of factor risk premia in conjunction with the three-factor risk model. Round your answers to two decimal places.
30-year period80-year periodBCD: % %FGH: % %JKL: % %
3- You now also consider historical estimates for the MOM risk factor over the two additional time frames: (1) MOM = 8.00 percent (30-year period), and (2) MOM = 9.77 percent (80-year period). Using this additional information, calculate the expected excess returns for BCD, FGH, and JKL in conjunction with the four-factor risk model. Round your answers to two decimal places.
30-year period80-year periodBCD: % %FGH: % %JKL: % %
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
