Question 1 The table below sets out the monthly total return, market capitalization, and research spending for ten firms over the four months from January 2020 to April 2020 inclusive. Each figure was observed at the end of the corresponding month. Jan Feb Mar Apr Firm1 9% -8% -3% 10% Firm2 -9% 10% -10% -10% Firm3 -3% -6% -1% -4% Firm 4 5% -7% -7% 4% Monthly Return (%) Firm5 Firm6 | Firm7 10% -3% 5% 1% -2% -7% 2% 0% -5% 9% 8% -2% Firm8 10% 6% -7% 2% Firm 5% 4% 6% 4% Firm10 -10% 9% 10% 4% Firm10 612 Market Capitalization ($ bn) Firm1 Firm2 Firm3 Firm4 Firm5 Firm6 Firm7 306255505693104147310 282 281 475 644 105 144 288 273 252 470 599 107 144 274 300227 451 623 | 117 | 156 268 Jan Feb Mar Apr Firm 432 458 426 434 Firm9 546 568 602 626 667 23 253 734 763 Apr Firm1 Firm2 Jan 10% 0% 11% Feb 1% 17% Mar 12% 1% Apr 18% 0% Firm3 5% 4% 9% 13% Research Spending (%) Firm4 Firm5 Firm6 Firm7 0% 2% 17% 13% 4% 3% 20% 7% 4% 10% 15% 14% 2% 0% 14% 1% Firm8 7% 20% 3% 16% Firm9 2% 7% 8% 4% Firm10 3% 0% 4% 18% a) Calculate the value-weighted average returns in April 2020 for each of the quintile portfolios formed by sorting on lagged Research Spending. Use lagged market capitalization for calculating value-weighted returns. (Hint: There are five quintile portfolios, each containing one fifth of all the stocks.) b) Calculate the value-weighted quintile hedge portfolio returns (aka factor portfolio returns equal to Quintile 5 minus Quintile 1 returns) in February, March, and April 2020. Question 1 The table below sets out the monthly total return, market capitalization, and research spending for ten firms over the four months from January 2020 to April 2020 inclusive. Each figure was observed at the end of the corresponding month. Jan Feb Mar Apr Firm1 9% -8% -3% 10% Firm2 -9% 10% -10% -10% Firm3 -3% -6% -1% -4% Firm 4 5% -7% -7% 4% Monthly Return (%) Firm5 Firm6 | Firm7 10% -3% 5% 1% -2% -7% 2% 0% -5% 9% 8% -2% Firm8 10% 6% -7% 2% Firm 5% 4% 6% 4% Firm10 -10% 9% 10% 4% Firm10 612 Market Capitalization ($ bn) Firm1 Firm2 Firm3 Firm4 Firm5 Firm6 Firm7 306255505693104147310 282 281 475 644 105 144 288 273 252 470 599 107 144 274 300227 451 623 | 117 | 156 268 Jan Feb Mar Apr Firm 432 458 426 434 Firm9 546 568 602 626 667 23 253 734 763 Apr Firm1 Firm2 Jan 10% 0% 11% Feb 1% 17% Mar 12% 1% Apr 18% 0% Firm3 5% 4% 9% 13% Research Spending (%) Firm4 Firm5 Firm6 Firm7 0% 2% 17% 13% 4% 3% 20% 7% 4% 10% 15% 14% 2% 0% 14% 1% Firm8 7% 20% 3% 16% Firm9 2% 7% 8% 4% Firm10 3% 0% 4% 18% a) Calculate the value-weighted average returns in April 2020 for each of the quintile portfolios formed by sorting on lagged Research Spending. Use lagged market capitalization for calculating value-weighted returns. (Hint: There are five quintile portfolios, each containing one fifth of all the stocks.) b) Calculate the value-weighted quintile hedge portfolio returns (aka factor portfolio returns equal to Quintile 5 minus Quintile 1 returns) in February, March, and April 2020