This exercise asks you to apply the Fama French 3 factor model to evaluate how risk factor sensitivity is estimated at the portfolio level Rei,t i i,MReMKT i,SMBSMBt i,HMLHMLt ei,tRi,te i i,MRMKTe i,SMBSMBt i,HMLHMLt ei,t To simplify notation in the regression notice that Rei,t Ri,tRF,t Ri,te Ri,tRF,t is stock or portfolio ithith excess return and ReMKT RMtRF,t RMKTe RMtRF,t is the excess return on a stock market portfolio SMB Small Minus Big, i e , the return of a portfolio of small stocks in excess of the return on a portfolio of large stocks HML High Minus Low, i e , the return of a portfolio of stocks with a high book to market ratio in excess of the return on a portfolio of stocks with a low book to market ratio Consider the monthly returns from Nov 2007 to October 2017 produced by a popular mutual fund Fidelity Magellan (FMAGX) This fund seeks capital appreciation The fund invests primarily in common stocks It invests in either growth stocks or value stocks or both DATE MKT SMB HML RETX TRMCX 2007M11 4 83 2 63 1 18 4 24 2007M12 0 87 0 2 0 52 13 52 2008M01 6 36 0 89 3 65 10 28 2008M02 3 09 0 23 0 95 2 93 2008M03 0 93 0 94 0 15 0 93 2008M04 4 6 1 64 0 96 4 06 2008M05 1 86 3 21 1 38 2 29 2008M06 8 44 1 27 2 43 8 15 2008M07 0 77 2 47 5 81 0 25 2008M08 1 53 3 61 1 56 1 81 2008M09 9 24 1 13 6 33 8 48 2008M10 17 23 2 33 2 89 19 70 2008M11 7 86 2 99 5 94 8 23 2008M12 1 74 3 59 0 24 0 35 2009M01 8 12 0 01 11 1 4 49 2009M02 10 1 0 17 7 25 8 78 2009M03 8 95 0 09 3 53 9 34 2009M04 10 19 4 83 5 46 16 66 2009M05 5 21 2 33 0 21 4 81 2009M06 0 43 2 61 2 71 0 86 2009M07 7 72 2 07 5 28 9 14 2009M08 3 33 0 9 7 76 5 50 2009M09 4 08 2 45 0 92 6 23 2009M10 2 59 4 22 4 17 4 62 2009M11 5 56 2 49 0 17 5 16 2009M12 2 75 6 11 0 01 3 69 2010M01 3 36 0 38 0 31 2 34 2010M02 3 4 1 2 3 16 3 25 2010M03 6 31 1 42 2 1 6 32 2010M04 2 4 98 2 81 3 76 2010M05 7 89 0 05 2 38 6 93 2010M06 5 56 1 97 4 5 6 70 2010M07 6 93 0 16 0 27 6 25 2010M08 4 77 3 1 95 5 23 2010M09 9 54 3 92 3 12 9 56 2010M10 3 88 1 15 2 59 2 05 2010M11 0 6 3 7 0 9 0 75 2010M12 6 82 0 7 3 81 5 41 2011M01 1 99 2 47 0 81 2 75 2011M02 3 49 1 52 1 09 4 42 2011M03 0 45 2 6 1 55 0 31 2011M04 2 9 0 34 2 51 2 51 2011M05 1 27 0 7 2 06 0 66 2011M06 1 75 0 18 0 31 1 80 2011M07 2 36 1 31 1 23 1 99 2011M08 5 99 3 06 2 44 8 35 2011M09 7 59 3 48 1 46 8 08 2011M10 11 35 3 41 0 17 10 04 2011M11 0 28 0 17 0 35 1 32 2011M12 0 74 0 71 1 74 4 89 2012M01 5 05 2 15 1 09 10 83 2012M02 4 42 1 75 0 09 4 14 2012M03 3 11 0 61 0 87 1 84 2012M04 0 85 0 52 0 47 0 59 2012M05 6 19 0 02 0 62 6 80 2012M06 3 89 0 77 0 44 4 48 2012M07 0 79 2 58 0 25 1 99 2012M08 2 55 0 41 1 28 3 43 2012M09 2 73 0 5 1 52 2 66 2012M10 1 76 1 14 3 79 0 49 2012M11 0 78 0 59 0 96 0 79 2012M12 1 18 1 47 3 55 4 16 2013M01 5 57 0 39 0 92 12 64 2013M02 1 29 0 45 0 1 57 2013M03 4 03 0 79 0 26 4 26 2013M04 1 55 2 44 0 59 0 41 2013M05 2 8 1 67 2 55 2 11 2013M06 1 2 1 22 0 19 1 30 2013M07 5 65 1 86 0 55 5 39 2013M08 2 71 0 3 2 78 3 52 2013M09 3 77 2 94 1 18 4 51 2013M10 4 18 1 49 1 15 4 11 2013M11 3 12 1 24 0 24 1 33 2013M12 2 81 0 5 0 3 1 67 2014M01 3 32 0 87 2 08 2 20 2014M02 4 65 0 33 0 39 5 00 2014M03 0 43 1 89 5 09 1 73 2014M04 0 19 4 25 1 14 0 48 2014M05 2 06 1 83 0 26 1 98 2014M06 2 61 3 06 0 74 3 19 2014M07 2 04 4 23 0 01 2 88 2014M08 4 24 0 37 0 57 4 37 2014M09 1 97 3 82 1 22 3 98 2014M10 2 52 4 23 1 69 1 25 2014M11 2 55 2 06 2 99 1 23 2014M12 0 06 2 54 2 07 12 35 2015M01 3 11 0 57 3 47 13 17 2015M02 6 13 0 53 1 77 5 05 2015M03 1 12 3 05 0 45 0 40 2015M04 0 59 2 97 1 85 0 61 2015M05 1 36 0 94 1 33 1 44 2015M06 1 53 2 81 0 81 1 82 2015M07 1 54 4 15 4 14 1 51 2015M08 6 04 0 49 2 69 4 51 2015M09 3 08 2 64 0 53 3 47 2015M10 7 75 1 98 0 09 5 67 2015M11 0 56 3 64 0 51 0 88 2015M12 2 17 2 81 2 57 13 26 2016M01 5 77 3 39 2 1 6 91 2016M02 0 07 0 78 0 48 1 65 2016M03 6 96 0 89 1 14 9 19 2016M04 0 92 0 67 3 25 3 27 2016M05 1 78 0 26 1 8 1 41 2016M06 0 05 0 65 1 49 0 45 2016M07 3 95 2 64 1 13 3 99 2016M08 0 5 1 17 3 34 0 29 2016M09 0 25 2 01 1 49 0 12 2016M10 2 02 4 36 4 16 1 85 2016M11 4 86 5 48 8 27 7 45 2016M12 1 82 0 08 3 61 4 81 2017M01 1 94 1 05 2 68 7 64 2017M02 3 57 1 99 1 79 2 11 2017M03 0 17 1 2 3 17 0 04 2017M04 1 09 0 73 1 91 0 22 2017M05 1 06 2 54 3 75 1 90 2017M06 0 78 2 15 1 32 1 84 2017M07 1 87 1 42 0 28 1 87 2017M08 0 16 1 71 2 26 1 60 2017M09 2 51 4 53 3 02 2 47 2017M10 2 25 1 94 0 09 0 3 This exercise asks you to apply the Fama French 3 factor model to evaluate how risk factor sensitivity is estimated at the portfolio level RE di Bim RM Bi,SMB SMB BiHmL HML lint it MKT To simplify notation in the regression notice that RR Rijt RF, is stock or portfolio ith excess return and RUKT RMt RF,1 is the excess return on a stock market portfolio SMB Small Minus Big, i e , the return of a portfolio of small stocks in excess of the return on a portfolio of large stocks HML High Minus Low, i e , the return of a portfolio of stocks with a high book to market ratio in excess of the return on a portfolio of stocks with a low book to market ratio Consider the monthly returns from Nov 2007 to October 2017 produced by a popular mutual fund Fidelity Magellan (FMAGX) This fund seeks capital appreciation The fund invests primarily in common stocks It invests in either growth stocks or value stocks or both In the estimation of the model choose Huber White Hinkley (HC1) heteroskedasticity consistent standard errors (Choose Coefficient Covariance Method Huber White on EViews) Question The estimated model is RA 1 15 1 32cdotRMKT 1 24cdotSMB 1 08cdotHML RE 1 32 0 73cdotRM 1 93cdotSMB, 0 73cdotHML, R 0 25 1 10cdotRuKT 0 15cdotSMB, 0 16cdotHML R 0 43 1 08cdotR 0 89cdotSMB 0 08cdotHML R 1 08 1 06cdotry 1 12cdotSMB 0 09cdotHML MKT MKT MKT In the estimation of the model choose Huber White Hinkley (HC1) heteroskedasticity consistent standard errors (Choose Coefficient Covariance Method Huber White on EViews) Question Choose the appropriate hypotheses to test whether the true coefficient on the size (SMB) risk factor is 0 O Ho BsMB 1 vs H BSMB 1 O Ho BSMB 0 vs H1 BSMB 1 vs H BSMB 1 O Ho BSMB 0 vs H1 BSMB

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Question: This exercise asks you to apply the Fama-French 3 factor model to evaluate how risk factor sensitivity is estimated at the portfolio level. Rei,t=i+i,MReMKT+i,SMBSMBt+i,HMLHMLt+ei,tRi,te=i+i,MRMKTe+i,SMBSMBt+i,HMLHMLt+ei,t To

This exercise asks you to apply the Fama-French 3 factor model to evaluate how risk factor sensitivity is estimated at the portfolio level.

Rei,t=i+i,MReMKT+i,SMBSMBt+i,HMLHMLt+ei,tRi,te=i+i,MRMKTe+i,SMBSMBt+i,HMLHMLt+ei,t

To simplify notation in the regression notice that:

Rei,t=Ri,tRF,t=Ri,te=Ri,tRF,t= is stock or portfolio ithith excess return and ReMKT=RMtRF,t=RMKTe=RMtRF,t= is the excess return on a "stock market portfolio".

SMB = Small Minus Big, i.e., the return of a portfolio of small stocks in excess of the return on a portfolio of large stocks.

HML = High Minus Low, i.e., the return of a portfolio of stocks with a high book-to-market ratio in excess of the return on a portfolio of stocks with a low book-to-market ratio.

Consider the monthly returns from Nov-2007 to October 2017 produced by a popular mutual fund: Fidelity Magellan (FMAGX). This fund seeks capital appreciation. The fund invests primarily in common stocks. It invests in either "growth" stocks or "value" stocks or both.

DATE	MKT	SMB	HML	RETX_TRMCX
2007M11	-4.83	-2.63	-1.18	-4.24
2007M12	-0.87	0.2	-0.52	-13.52
2008M01	-6.36	-0.89	3.65	10.28
2008M02	-3.09	-0.23	-0.95	-2.93
2008M03	-0.93	0.94	-0.15	-0.93
2008M04	4.6	-1.64	-0.96	4.06
2008M05	1.86	3.21	-1.38	2.29
2008M06	-8.44	1.27	-2.43	-8.15
2008M07	-0.77	2.47	5.81	-0.25
2008M08	1.53	3.61	1.56	1.81
2008M09	-9.24	-1.13	6.33	-8.48
2008M10	-17.23	-2.33	-2.89	-19.70
2008M11	-7.86	-2.99	-5.94	-8.23
2008M12	1.74	3.59	-0.24	0.35
2009M01	-8.12	-0.01	-11.1	-4.49
2009M02	-10.1	0.17	-7.25	-8.78
2009M03	8.95	-0.09	3.53	9.34
2009M04	10.19	4.83	5.46	16.66
2009M05	5.21	-2.33	-0.21	4.81
2009M06	0.43	2.61	-2.71	0.86
2009M07	7.72	2.07	5.28	9.14
2009M08	3.33	-0.9	7.76	5.50
2009M09	4.08	2.45	0.92	6.23
2009M10	-2.59	-4.22	-4.17	-4.62
2009M11	5.56	-2.49	-0.17	5.16
2009M12	2.75	6.11	0.01	3.69
2010M01	-3.36	0.38	0.31	-2.34
2010M02	3.4	1.2	3.16	3.25
2010M03	6.31	1.42	2.1	6.32
2010M04	2	4.98	2.81	3.76
2010M05	-7.89	0.05	-2.38	-6.93
2010M06	-5.56	-1.97	-4.5	-6.70
2010M07	6.93	0.16	-0.27	6.25
2010M08	-4.77	-3	-1.95	-5.23
2010M09	9.54	3.92	-3.12	9.56
2010M10	3.88	1.15	-2.59	2.05
2010M11	0.6	3.7	-0.9	0.75
2010M12	6.82	0.7	3.81	5.41
2011M01	1.99	-2.47	0.81	2.75
2011M02	3.49	1.52	1.09	4.42
2011M03	0.45	2.6	-1.55	0.31
2011M04	2.9	-0.34	-2.51	2.51
2011M05	-1.27	-0.7	-2.06	-0.66
2011M06	-1.75	-0.18	-0.31	-1.80
2011M07	-2.36	-1.31	-1.23	-1.99
2011M08	-5.99	-3.06	-2.44	-8.35
2011M09	-7.59	-3.48	-1.46	-8.08
2011M10	11.35	3.41	-0.17	10.04
2011M11	-0.28	-0.17	-0.35	-1.32
2011M12	0.74	-0.71	1.74	-4.89
2012M01	5.05	2.15	-1.09	10.83
2012M02	4.42	-1.75	0.09	4.14
2012M03	3.11	-0.61	0.87	1.84
2012M04	-0.85	-0.52	-0.47	-0.59
2012M05	-6.19	0.02	-0.62	-6.80
2012M06	3.89	0.77	0.44	4.48
2012M07	0.79	-2.58	-0.25	1.99
2012M08	2.55	0.41	1.28	3.43
2012M09	2.73	0.5	1.52	2.66
2012M10	-1.76	-1.14	3.79	-0.49
2012M11	0.78	0.59	-0.96	0.79
2012M12	1.18	1.47	3.55	-4.16
2013M01	5.57	0.39	0.92	12.64
2013M02	1.29	-0.45	0	1.57
2013M03	4.03	0.79	-0.26	4.26
2013M04	1.55	-2.44	0.59	0.41
2013M05	2.8	1.67	2.55	2.11
2013M06	-1.2	1.22	-0.19	-1.30
2013M07	5.65	1.86	0.55	5.39
2013M08	-2.71	0.3	-2.78	-3.52
2013M09	3.77	2.94	-1.18	4.51
2013M10	4.18	-1.49	1.15	4.11
2013M11	3.12	1.24	0.24	1.33
2013M12	2.81	-0.5	-0.3	-1.67
2014M01	-3.32	0.87	-2.08	2.20
2014M02	4.65	0.33	-0.39	5.00
2014M03	0.43	-1.89	5.09	1.73
2014M04	-0.19	-4.25	1.14	0.48
2014M05	2.06	-1.83	-0.26	1.98
2014M06	2.61	3.06	-0.74	3.19
2014M07	-2.04	-4.23	0.01	-2.88
2014M08	4.24	0.37	-0.57	4.37
2014M09	-1.97	-3.82	-1.22	-3.98
2014M10	2.52	4.23	-1.69	1.25
2014M11	2.55	-2.06	-2.99	1.23
2014M12	-0.06	2.54	2.07	-12.35
2015M01	-3.11	-0.57	-3.47	13.17
2015M02	6.13	0.53	-1.77	5.05
2015M03	-1.12	3.05	-0.45	-0.40
2015M04	0.59	-2.97	1.85	0.61
2015M05	1.36	0.94	-1.33	1.44
2015M06	-1.53	2.81	-0.81	-1.82
2015M07	1.54	-4.15	-4.14	-1.51
2015M08	-6.04	0.49	2.69	-4.51
2015M09	-3.08	-2.64	0.53	-3.47
2015M10	7.75	-1.98	-0.09	5.67
2015M11	0.56	3.64	-0.51	0.88
2015M12	-2.17	-2.81	-2.57	-13.26
2016M01	-5.77	-3.39	2.1	6.91
2016M02	-0.07	0.78	-0.48	1.65
2016M03	6.96	0.89	1.14	9.19
2016M04	0.92	0.67	3.25	3.27
2016M05	1.78	-0.26	-1.8	1.41
2016M06	-0.05	0.65	-1.49	-0.45
2016M07	3.95	2.64	-1.13	3.99
2016M08	0.5	1.17	3.34	0.29
2016M09	0.25	2.01	-1.49	0.12
2016M10	-2.02	-4.36	4.16	-1.85
2016M11	4.86	5.48	8.27	7.45
2016M12	1.82	0.08	3.61	-4.81
2017M01	1.94	-1.05	-2.68	7.64
2017M02	3.57	-1.99	-1.79	2.11
2017M03	0.17	1.2	-3.17	0.04
2017M04	1.09	0.73	-1.91	-0.22
2017M05	1.06	-2.54	-3.75	-1.90
2017M06	0.78	2.15	1.32	1.84
2017M07	1.87	-1.42	-0.28	1.87
2017M08	0.16	-1.71	-2.26	-1.60
2017M09	2.51	4.53	3.02	2.47
2017M10	2.25	-1.94	-0.09	0.3

This exercise asks you to apply the Fama-French 3 factor model to evaluate how risk factor sensitivity is estimated at the portfolio level. Rei,t=i+i,MReMKT+i,SMBSMBt+i,HMLHMLt+ei,tRi,te=i+i,MRMKTe+i,SMBSMBt+i,HMLHMLt+ei,t To simplify notation in the regression notice that: Rei,t=Ri,tRF,t=Ri,te=Ri,tRF,t= is stock or portfolio ithith excess return and ReMKT=RMtRF,t=RMKTe=RMtRF,t= is the excess return on a

This exercise asks you to apply the Fama-French 3 factor model to evaluate how risk factor sensitivity is estimated at the portfolio level. RE = di + Bim RM + Bi,SMB SMB: + BiHmL HML: + lint it MKT To simplify notation in the regression notice that: RR = Rijt RF, = is stock or portfolio ith excess return and RUKT = RMt RF,1 = is the excess return on a "stock market portfolio". SMB = Small Minus Big, i.e., the return of a portfolio of small stocks in excess of the return on a portfolio of large stocks. HML = High Minus Low, i.e., the return of a portfolio of stocks with a high book-to-market ratio in excess of the return on a portfolio of stocks with a low book-to-market ratio. Consider the monthly returns from Nov-2007 to October 2017 produced by a popular mutual fund: Fidelity Magellan (FMAGX). This fund seeks capital appreciation. The fund invests primarily in common stocks. It invests in either "growth" stocks or "value" stocks or both. In the estimation of the model choose "Huber-White-Hinkley (HC1) heteroskedasticity consistent standard errors". (Choose Coefficient Covariance Method "Huber-White" on EViews). Question: The estimated model is: RA = -1.15 + 1.32cdotRMKT - 1.24cdotSMB: - 1.08cdotHML; RE = -1.32 +0.73cdotRM + 1.93cdotSMB, + 0.73cdotHML, R = -0.25 + 1.10cdotRuKT + 0.15cdotSMB, 0.16cdotHML; R = -0.43 + 1.08cdotR 0.89cdotSMB: + 0.08cdotHML R = -1.08 + 1.06cdotry + 1.12cdotSMB+ 0.09cdotHML MKT MKT MKT In the estimation of the model choose "Huber-White-Hinkley (HC1) heteroskedasticity consistent standard errors". (Choose Coefficient Covariance Method "Huber-White" on EViews). Question: Choose the appropriate hypotheses to test whether the true coefficient on the "size (SMB) risk factor" is 0. O Ho : BsMB > 1; vs H : BSMB 1 O Ho : BSMB > 0; vs H1 : BSMB 1; vs H : BSMB 1 O Ho : BSMB > 0; vs H1 : BSMB

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