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ACFI901-Financial Econometrics

2021/22 Assessment

Visit Kenneth Frenchís website1 to download monthly data for the factors of Fama and French 5   factor model (Fama/French 5 Research Factors) which include the excess return on market            portfolio, the size premium, the value premium, the proÖtability factor, the investment factor and the risk-free rate of the economy. Download also the 10 momentum-sorted portfolios (10 Portfolios Formed on Momentum). Use monthly data for the full sample available and in all cases use           value-weighted returns. You should then proceed and estimate (for each of the ten portfolio) the   Fama French 5-factor model (F-F-5M).

The word limit for this assessment is 3,000 words. References, Tables, Figures, Equations are NOT included in the word count. The assessment should be written (and submitted) in MS Word. Make sure that you use the MS Word Equation Editor in order to clearly present mathematical notation and equations. You should clearly present the results in easy-to-read Tables and Figures, which      should be accompanied by clear/detailed notes that explain the content. Make sure that you          number the Tables/Figures in order to easily refer to them.

The following points are meant to give you some general directions/ideas, so you do not necessarily have to apply them all, or use them to structure your document. You should include an                  introduction in the context of which you explain the F-F-5M (see point 1 below). In the same        section, you should include a description and the main objectives of you analysis. You should then provide a clear description of your data (see point 2 below). The main part of your document         should be the empirical analysis, in the context of which you estimate, test and interpret the

F-F-5M, for each portfolio. You should conclude the assessment with a section that summarises the most important Öndings.

You will have to submit the EViews workÖle you used using a speciÖc link. This Öle should include the data you use, as well as the equations you estimate and any other relevant output.

Guidance/Ideas

1. Write the F-F-5M as a regression model. Explain the rationale of this model in your own words and clearly deÖne all the components (dependent and independent variables in each case) involved.

2.  Clearly deÖne and explain the data you use.

3. Present any relevant descriptive statistics and/or plots for the data you use. Such information should be clearly presented in Tables and/or Figures.

4. Estimate the F-F-5M for each of the 10 portfolios. For each of the 4a-4e aspects below, comment upon the results and any (potential) patterns that you Önd.

(a)  Compare the sign and magnitude of the estimates as you move from the lowest to the highest portfolio.

(b)  Compare the tests of individual signiÖcance of the factors (regressors) of each regression.

1 http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html