Fama-French 3 factors model‚ what would the monthly excess returns on these portfolios not just compare to excess returns on the market portfolio‚ but also with monthly returns on the small portfolios minus big portfolios (SMB)‚ and high book-to-market ratios minus low book-to-market ratios (HML).The coefficient of is 0.09(previous is 0.5) means the average monthly return 0.09% above those 3 factors‚ suggesting these portfolios perform well. But the t-stat of is 1.60 suggests that the monthly excess returns
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portfolios (Bear Market) 38 Figure 1 : Market Factor 30 Figure 2 : Size Factor 31 Figure 3 : Book-to-market Factor 32 Figure 4 : Momentum Factor 33 Picture 1 : Market Return 49 Picture 2 : SMB Return 49 Picture 3 : HML Return 50 Picture 4 : WML Return 50 Acknowledgement Abstract This paper‚ we study the significance of the four-factor asset pricing model (market factor‚ size factor‚ book-to-market factor and momentum factor) in
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market portfolio return; (ii): the difference between the excess return on a portfolio of small stocks and the excess return on a portfolio of big stocks (SMB‚ small minus big); and (iii) the difference between the excess return on a portfolio of high-book-to-market stocks and the excess return on a portfolio of low-book-to-market stocks (HML‚ high
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Part1 7. Why are the following “effects” considered efficient market anomalies? Are there rational explanations for any of these effects? a. P/E effect. P/E effect can be considered as efficient market anomalies that can’t be explained by CAPM. If two firms have the same expected earnings‚ the riskier stock will sell at a lower price and lower P/E ratio. Thus the low P/E stock will have higher expected returns. P/E acts as a useful additional descriptor of risk‚ and will be associated with
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Our results are robust to specifications that account for potential endogeneity related to a firm’s derivatives use and capital structure decisions. We further find that the reduction in the cost of equity is attributable to both lower market beta and SMB beta‚ suggesting that firms use derivatives to reduce their financial distress risk and that this distress risk has a systematic component that is priced in the market. Finally‚ the observed reductions in the cost of equity tend to be largest for smaller
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Liquidity Risk and Expected Stock Returns ˇ Lubos Pa ˇ ´stor University of Chicago‚ National Bureau of Economic Research‚ and Centre for Economic Policy Research Robert F Stambaugh . University of Pennsylvania and National Bureau of Economic Research This study investigates whether marketwide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity
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Journal of Financial Economics 33 (1993) 3-56. North-Holland Common risk factors in the returns stocks and bonds* Eugene F. Fama and Kenneth on R. French Unirrrsit.v 01 Chicayo. Chiccup. I .L 60637‚ C;S;L Received July 1992. final version received September 1992 This paper identities five common risk factors in the returns on stocks and bonds. There are three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity. There are two bond-market
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portfolio away from the market‚ making an active portfolio. We exploit ‘a’ but gain unsystematic risk. Four-Factor model: * SMB = difference between small and large cap stocks * HML = difference between high and low book-to-market stocks * MOM = returns difference between stocks with high and low past returns * CAPM Fama-French (FF) model: Doesn’t include MOM. Predicts that firm size affects average returns Arbitrage risk: * Execution (or leg) risk: Only
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returns in stocks and bonds". They found that small capitalizations tend to outperform large capitalizations (SMB)‚ and that high BE/ME firms tend to outperform low BE/ME firms (HML). As a fund‚ the clever trick
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will not be graded but you are asked to prepare it before the tutorial and be able to answer questions about it during the tutorial and in the lecture the week after. Assignment: The file data.xls provides excess returns on three factors (mkt‚ smb‚ hml - columns B-D) which are in excess return form as well as the risk-less rate (column E)‚ from 1990-2002. Columns F-O provide returns on 10 portfolios (which are not in excess return). The file mpr.xls provides excess return information for the 10
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