You have been assigned the task of comparing the investment performance of five different pension fund managers. After gathering 60 months of excess returns (returns in excess of the monthly risk-free rate) on each fund as well as the monthly excess returns on the entire stock market, you perform the regressions of the form: (Rfund - RFR)t = a + B(Rmkt - RFR)t + et You have prepared the following summary of the data, with the standard errors for each of the coefficients listed in parentheses. Regression Data (Rfund - RFR) Portfolio a B R^2 Mean o ABC 0.192 1.048 94.1% 1.022% 1.193% (0.11) (0.10) DEF -0.053 0.662 91.6% 0.473% 0.764% (0.19) (0.09) GHI 0.463 0.594 68.6% 0.935% 0.793% (0.19) (0.07) JKL 0.355 0.757 64.1% 0.955% 1.044% (0.22) (0.08) (MNO) 0.296 0.785 94.8% 0.890% 0.890% (0.14) (0.12) a. Which fund had the highest degree of diversification over the sample period? How is diversification measured in this statistical framework? b. Rank these funds' performance according to the Sharpe, Treynor, and Jensen measures. c. Since you know that according to the CAPM the intercept of these regressions (alpha) should be zero, this coefficient can be used as a measure of the value added provided by the investment manager. Which funds have statistically outperformed and underperformed the market using a two-sided 95% confidence interval? (Note: The relevant t-statistic using 60 observations is 2.00.)

College Algebra

7th Edition

ISBN:9781305115545

Author:James Stewart, Lothar Redlin, Saleem Watson

Publisher:James Stewart, Lothar Redlin, Saleem Watson

Chapter1: Equations And Graphs

Section: Chapter Questions

Problem 10T: Olympic Pole Vault The graph in Figure 7 indicates that in recent years the winning Olympic men’s...

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You have been assigned the task of comparing the investment performance of five different pension fund managers. After gathering 60 months of excess returns (returns in excess of the monthly risk-free rate) on each fund as well as the monthly excess returns on the entire stock market, you perform the regressions of the form:

(Rfund - RFR)t = a + B(Rmkt - RFR)t + et

You have prepared the following summary of the data, with the standard errors for each of the coefficients listed in parentheses.

	Regression Data		(Rfund - RFR)
Portfolio	a	B	R^2	Mean	o
ABC	0.192	1.048	94.1%	1.022%	1.193%
	(0.11)	(0.10)
DEF	-0.053	0.662	91.6%	0.473%	0.764%
	(0.19)	(0.09)
GHI	0.463	0.594	68.6%	0.935%	0.793%
	(0.19)	(0.07)
JKL	0.355	0.757	64.1%	0.955%	1.044%
	(0.22)	(0.08)
(MNO)	0.296	0.785	94.8%	0.890%	0.890%
	(0.14)	(0.12)

a. Which fund had the highest degree of diversification over the sample period? How is diversification measured in this statistical framework?

b. Rank these funds' performance according to the Sharpe, Treynor, and Jensen measures.

c. Since you know that according to the CAPM the intercept of these regressions (alpha) should be zero, this coefficient can be used as a measure of the value added provided by the investment manager. Which funds have statistically outperformed and underperformed the market using a two-sided 95% confidence interval? (Note: The relevant t-statistic using 60 observations is 2.00.)

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