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AD685_TP_Part1

The data below contains monthly returns of the FamaFrench Five Factors and the monthly returns of the

Momentum Factor. It also contains the risk-free rate which

you will need to find the excess return of mutual funds and

exchange-traded funds later. It was obtained from

Professor

Kenneth

French’s

website:

http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/da

ta_library.html For your data description section, please

consider the following questions. Provide an answer here,

and include your results in the term paper. Split the full

sample into the following three equal periods of five years;

each subsample should have 60 data points. Report the

complete descriptive statistics in your term paper and the

following results here. For each period and for each of the

six risk factors, compute mean, standard deviation, skew,

and excess kurtosis. (Note: The excess kurtosis is the

kurtosis minus 3, such that the result for the normal

distribution is zero.) For each of the three periods, identify

which factor portfolio gives the lowest and highest future

value. Round all your answers to four decimals.

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Compute the standard deviation of the returns of the MKT-portfolio for period 1.

Compute the skew of the returns of the SMB-portfolio for period 1.

Compute the excess kurtosis of the returns of the HML-portfolio for period 1.

Compute the mean of the returns of the RMW-portfolio for period 1.

Compute the standard deviation of the returns of the RMW-portfolio for period 1.

Compute the standard deviation of the returns of the CMA-portfolio for period 1.

Compute the skew of the returns of the CMA-portfolio for period 1.

Compute the mean of the returns of the MOM-portfolio for period 1.

Compute the standard deviation of the returns of the SMB-portfolio for period 2.

Compute the mean of the returns of the CMA-portfolio for period 2.

Compute the standard deviation of the returns of the HML-portfolio for period 3.

Compute the excess kurtosis of the returns of the HML-portfolio for period 3.

Compute the standard deviation of the returns of the RMW-portfolio for period 3.

Compute the excess kurtosis of the returns of the MOM-portfolio for period 3.

For the first period, which factor gives the highest future value? Compute the future

value of an initial investment of USD 1 in that factor for this period in USD.

For the first period, which factor gives the lowest future value? Compute the future

value of an initial investment of USD 1 in that factor for this period in USD.

For the second period, which factor gives the highest future value? Compute the future

value of an initial investment of USD 1 in that factor for this period in USD.

For the second period, which factor gives the lowest future value? Compute the future

value of an initial investment of USD 1 in that factor for this period in USD.

For the third period, which factor gives the highest future value? Compute the future

value of an initial investment of USD 1 in that factor for this period in USD.

For the third period, which factor gives the lowest future value? Compute the future

value of an initial investment of USD 1 in that factor for this period in USD.

AD685_TP_Part2

A mutual fund is a professionally managed fund to purchase

securities, usually with a predefined strategy and objective.

An exchange-traded fund (ETF) is a passive investment

fund that also holds assets like stocks, commodities, or

bonds, and it trades on stock exchanges itself. There exist

hundreds of mutual funds and ETFs with different

investment objectives. Among the most traded ETFs are

the SPY and the QQQ, which seek to reproduce the

performance of the S&P 500 and the NASDAQ,

respectively. For your data description section, please

consider the following questions. Provide an answer here,

and include your results in the term paper. Round all your

answers to four decimals. If entering a percentage value,

enter without the percentage sign. For example, enter

2.3456% as 2.3456.

DATASET

Go to the Yahoo! finance website. Download the monthly adjusted close price for the

five year period from 2014-01-01 to 2018-12-31 for the following funds: ATSMX, PIZ,

and PDP.

Compute the mean of the monthly returns of your mutual fund, ATSMX.

Compute the standard deviation of the monthly returns of your mutual fund, ATSMX.

Compute the mean of the monthly returns of PIZ.

Compute the standard deviation of the monthly returns of PIZ.

Compute the mean of the monthly returns of PDP.

Compute the standard deviation of the monthly returns of PDP.

Test the hypothesis that the average return of your mutual fund and the average

return of PIZ are identical. What is the value of the test statistic?

8. Using a monthly risk-free rate equal to 0.04167% per month (which corresponds

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to a continuously compounded annual rate of 0.5%), compute the Sharpe ratio of

the mutual fund.

9. Using a monthly risk-free rate equal to 0.04167% per month (which corresponds

to a continuously compounded annual rate of 0.5%), compute the Sharpe ratio of

PIZ.

10. Using a monthly risk-free rate equal to 0.04167% per month (which corresponds

to a continuously compounded annual rate of 0.5%), compute the Sharpe ratio of

PDP.

AD685_TP_Part3

In this section, you need to use information from Part

1 and Part 2. Consider the time period from part 2. Use

the Fama-French Three-Factor model augmented by

‘Momentum’ (MOM) to estimate the expected returns

of the mutual fund and of each of the ETFs from part

2. Refer to the Word document for a more detailed

explanation. For your empirical results section, please

consider the following questions. Provide an answer

here, and include your results in the term paper.

Round all your answers to four decimals.

DATASET

Continue using the data for the five year period from 2014-01-01 to 2018-12-31 for

the following funds: ATSMX, PIZ, and PDP. You will also need the Fama-French

data from part 1.

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What is the risk premium for the MKT factor?

What is the risk premium for the SMB factor?

What is the risk premium for the HML factor?

What is the risk premium for the MOM factor?

What is the exposure of $ATSMX to the MKT factor?

What is the exposure of $ATSMX to the SMB factor?

What is the exposure of $ATSMX to the HML factor?

What is the exposure of $ATSMX to the MOM factor?

What is the expected monthly return of $ATSMX?

What is the adjusted R-squared for the regression on $ATSMX?

What is the exposure of $PIZ to the MKT factor?

What is the exposure of $PIZ to the SMB factor?

What is the exposure of $PIZ to the HML factor?

What is the exposure of $PIZ to the MOM factor?

What is the expected monthly return of $PIZ?

What is the adjusted R-squared for the regression on $PIZ?

What is the exposure of $PDP to the MKT factor?

What is the exposure of $PDP to the SMB factor?

What is the exposure of $PDP to the HML factor?

What is the exposure of $PDP to the MOM factor?

What is the expected monthly return of $PDP?

What is the adjusted R-squared for the regression on $PDP?

AD685_TP_Part4

In this section, you need to use information from Part 1

through Part 3. Use the Fama-French Five-Factor model

(without ‘Momentum’) to estimate the expected returns of

the mutual fund and of each of the ETFs from part 2. Refer

to the Word document for a more detailed explanation. For

your empirical results section, please consider the same

questions as in Part 3, including the two additional factors.

Provide an answer here for the following questions, and

make sure to include the results in the term paper. Round

all your answers to four decimals.

DATASET

Continue using the data for the five year period from 2014-01-01 to 2018-12-31 for

the following funds: ATSMX, PIZ, and PDP. You will also need the Fama-French

data from part 1.

1. What is the risk premium for the MKT factor?

2. What is the risk premium for the SMB factor?

3. What is the risk premium for the HML factor?

4. What is the risk premium for the RMW factor?

5. What is the risk premium for the CMA factor?

6. What is the exposure of $ATSMX to the MKT factor?

7. What is the exposure of $ATSMX to the SMB factor?

8. What is the exposure of $ATSMX to the HML factor?

9. What is the exposure of $ATSMX to the RMW factor?

10. What is the exposure of $ATSMX to the CMA factor?

11. What is the expected monthly return of $ATSMX?

12. What is the exposure of $PIZ to the MKT factor?

13. What is the exposure of $PIZ to the SMB factor?

14. What is the exposure of $PIZ to the HML factor?

15. What is the exposure of $PIZ to the RMW factor?

16. What is the exposure of $PIZ to the CMA factor?

17. What is the expected monthly return of $PIZ?

18. What is the exposure of $PDP to the MKT factor?

19. What is the exposure of $PDP to the SMB factor?

20. What is the exposure of $PDP to the HML factor?

21. What is the exposure of $PDP to the RMW factor?

22. What is the exposure of $PDP to the CMA factor?

23. What is the expected monthly return of $PDP?

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