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You would like to evaluate the historical relationship between value-oriented and growth oriented stocks that form the basis for theHMLrisk factor in the Fama-French multifactor model. The proxies you choose are theRussell 1000 Value Index (.RLV)and theRussell 1000 Growth Index (.RLG), respectively.
Download weekly price information for the five-year period fromJanuary 01, 2014, toDecember 31, 2018, for each index.
For each index, calculate the set of weekly returns that correspond to these weekly price series.
Calculate the average weekly return and the return standard deviation for each index series. Which equity investment style (i.e., value versus growth) appears to have been the most successful over this sample period?
Suppose that you are considering forming a fund employing a strategy of always being long in value stocks and short in growth stocks. Evaluate the potential success of this strategy by taking the difference in returns between the value and growth indexes you analyzed above. What is the average return and return standard deviation for the return differential series?
Plot the return differential series you calculated in Part d, using the return differential on the vertical axis and time on the horizontal axis. What do you conclude about the viabilityof the “long value, short growth” investment strategy? Can HML be a factor?
2.It is proposed to use another alternative to check the relevance of the HML factor. Using an appropriate regression model to check whether the HML factor calculated above, explain the weekly returns of the following securities during the same period :
Tesla, Inc. (TSLA)
Alphabet Inc. (GOOG)
Walmart Inc. (WMT)
(hint: for each security, run the following univariate regression :R(i,t)= a0+ biHMLt+ eiand check the significance of bi)
Nov 23 2019 View more View Less
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