Consider the following monthly data for various factors and a trading strategy: Month Mkt-RF SMB HML RMW CMA UMD Strategy Z 1 0.61 -2.56 -0.04 2.42 2.86 1.62 -0.24 2 0.35 -0.38 -7.72 -1.81 -7.22 -0.63 -2.89 3 6.46 1.34 -0.26 2.18 -1.62 -2.37 6.11 4 3.21 2.86 4.11 -0.57 0.57 -3.98 5.39 5 -2.39 -3.65 -1.06 3.43 -2.37 3.77 -3.67 6 -5.24 -1.8 1.52 1.86 -0.83 0.26 -4.65 7 -3.19 -4.05 0.18 2.47 -0.65 1.72 -4.01 8 8.84 -0.12 1.64 -3.91 -1.00 2.75 8.58 9 4.87 7.32 4.93 -3.07 1.32 -5.51 8.55 10 0.71 -5.74 -2.38 0.69 -0.96 5.19 -2.04 11 5.06 -0.78 -3.49 -1.99 -2.14 4.96 2.92 12 2.83 -1.16 4.19 1.48 1.18 -0.42 3.88 (a) (10 marks) Calculate the annualised alpha of Strategy Z against a benchmark model consisting of the market factor, the profitability factor, and the momentum factor. Hint: You may use the Excel function LINEST() or the regression function in the Excel Data Analysis toolbox to get regression results. Answer:
Consider the following monthly data for various factors and a trading strategy: Month Mkt-RF SMB HML RMW CMA UMD Strategy Z 1 0.61 -2.56 -0.04 2.42 2.86 1.62 -0.24 2 0.35 -0.38 -7.72 -1.81 -7.22 -0.63 -2.89 3 6.46 1.34 -0.26 2.18 -1.62 -2.37 6.11 4 3.21 2.86 4.11 -0.57 0.57 -3.98 5.39 5 -2.39 -3.65 -1.06 3.43 -2.37 3.77 -3.67 6 -5.24 -1.8 1.52 1.86 -0.83 0.26 -4.65 7 -3.19 -4.05 0.18 2.47 -0.65 1.72 -4.01 8 8.84 -0.12 1.64 -3.91 -1.00 2.75 8.58 9 4.87 7.32 4.93 -3.07 1.32 -5.51 8.55 10 0.71 -5.74 -2.38 0.69 -0.96 5.19 -2.04 11 5.06 -0.78 -3.49 -1.99 -2.14 4.96 2.92 12 2.83 -1.16 4.19 1.48 1.18 -0.42 3.88 (a) (10 marks) Calculate the annualised alpha of Strategy Z against a benchmark model consisting of the market factor, the profitability factor, and the momentum factor. Hint: You may use the Excel function LINEST() or the regression function in the Excel Data Analysis toolbox to get regression results. Answer:
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 83E
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Transcribed Image Text:Consider the following monthly data for various factors and a trading strategy:
Month
Mkt-RF
SMB
HML
RMW
CMA
UMD
Strategy Z
1
0.61
-2.56
-0.04
2.42
2.86
1.62
-0.24
2
0.35
-0.38
-7.72
-1.81
-7.22
-0.63
-2.89
3
6.46
1.34
-0.26
2.18
-1.62
-2.37
6.11
4
3.21
2.86
4.11
-0.57
0.57
-3.98
5.39
5
-2.39
-3.65
-1.06
3.43
-2.37
3.77
-3.67
6
-5.24
-1.8
1.52
1.86
-0.83
0.26
-4.65
7
-3.19
-4.05
0.18
2.47
-0.65
1.72
-4.01
8
8.84
-0.12
1.64
-3.91
-1.00
2.75
8.58
9
4.87
7.32
4.93
-3.07
1.32
-5.51
8.55
10
0.71
-5.74
-2.38
0.69
-0.96
5.19
-2.04
11
5.06
-0.78
-3.49
-1.99
-2.14
4.96
2.92
12
2.83
-1.16
4.19
1.48
1.18
-0.42
3.88
(a) (10 marks) Calculate the annualised alpha of Strategy Z against a benchmark model
consisting of the market factor, the profitability factor, and the momentum factor.
Hint: You may use the Excel function LINEST() or the regression function in the
Excel Data Analysis toolbox to get regression results.
Answer:
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