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use those estimates to calculate the expected FF3 monthly return

use those estimates to calculate the expected FF3 monthly return

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Given the monthly returns below, calculate the Fama French 3-factor (FF3) alpha and betas of strategy X. Then use those estimates to calculate the expected FF3 monthly return assuming that the expected return of each of the factors is equal to their historical mean return. Also assume that the performance of strategy X relative to the FF3 factors in the future will be the same as in the past, which is to say, it will generate the same alpha and betas. 1% 20% 12% 2% 21% -7% 5% -2% 9% 10% 19% 19% -6% 12% -6% 0% 20% 11% Strategy X Monthly excess return MKTRF 3% 4% -6% 1% 3% -4% 0% 12% 15% 17% 2% 10% 12% 15% -4% -7% 1% -5% 6% 11% -1% -7% 12% -2% -2% -6% 16% 14% 13% -5% 19% 20% 12% -6% 6% -4% SMB HML -9% 14% -6% 8% 6% 16% -2% 6% 17% -6% -8% -7% 16% 12% -7% -9% 18% 11%
Transcribed Image Text:Given the monthly returns below, calculate the Fama French 3-factor (FF3) alpha and betas of strategy X. Then use those estimates to calculate the expected FF3 monthly return assuming that the expected return of each of the factors is equal to their historical mean return. Also assume that the performance of strategy X relative to the FF3 factors in the future will be the same as in the past, which is to say, it will generate the same alpha and betas. 1% 20% 12% 2% 21% -7% 5% -2% 9% 10% 19% 19% -6% 12% -6% 0% 20% 11% Strategy X Monthly excess return MKTRF 3% 4% -6% 1% 3% -4% 0% 12% 15% 17% 2% 10% 12% 15% -4% -7% 1% -5% 6% 11% -1% -7% 12% -2% -2% -6% 16% 14% 13% -5% 19% 20% 12% -6% 6% -4% SMB HML -9% 14% -6% 8% 6% 16% -2% 6% 17% -6% -8% -7% 16% 12% -7% -9% 18% 11%
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