Select ten stocks from the Data File such that there are five US equities and five non-US equities

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Investment Analysis Business 

Note: This assignment uses the Excel data file titled Modelling Assignment 3 Data File.xlsx found on ACORN. In addition to this data file, you will also need to download information from Kenneth French’s Data Library at Tuck School of Business at Dartmouth College, found here.

Assignment Set Up

To begin this assignment, you are required to narrow down the Data File on ACORN. To accomplish this:

1. Select ten stocks from the Data File such that there are five US equities and five non-US equities. Note that you will need both the monthly and daily returns for each firm, which are found on two separate tabs in the Data File.

2. Select a random time-period that is at least five years in length (i.e., at least 60 monthly returns).

Model 3a: Test of the Capital Asset Pricing Model (CAPM) for Monthly vs Daily Data

For each of your ten securities, you will need to run the Market Model twice:

1. Run the model for daily returns for your time period.

2. Run the model for monthly returns for your time period.

3. Summarize the pertinent information (refer to our lecture on October 29th for what that information is) from these 20 regressions in a table.

i. Your data should be grouped (with averages) by frequency (i.e., daily and monthly).

ii. Your regression results will be output on to a new tab by Excel. Label these tabs appropriately (e.g., CAPM-D-ABC for the CAPM regression using daily data for a company with a ticker of ABC).

iii. Hide (do not delete) the output tabs for these 20 regressions.

4. Statistically test if the CAPM has more explanatory power in modelling daily or monthly security returns over your chosen time period. Be sure to clearly indicate which statistical test you used in determining this.

 Model 3b: Test of the Fama-French Three Factor Model (FF3) vs the Carhart Four Factor Model (C4)

For daily returns only:

1. Regress the returns of your ten securities on the three risk factors of the Fama-French Three Factor Model.

2. Regress the returns of your ten securities on the four risk factors of the Carhart Four Factor Model.

3. Summarize the pertinent information from these 20 regressions in a table.

i. Your data should be grouped (with averages) by model employed (i.e., FF3 and C4).

ii. Your regression results will be output on to a new tab by Excel. Label these tabs appropriately (e.g., FF3-ABC for the FF3 regression for a company with a ticker of ABC).

iii. Hide (do not delete) the output tabs for these 20 regressions.

4. Statistically test which of the two models has more explanatory power in modelling daily security returns over your chosen time period. Be sure to clearly indicate which statistical test you used in determining this.

Attachments:

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