Project
ECONOMETRICS 1
SUMMATIVE PROJECT
Introduction.
“There 's nothing in the world so demoralizing as money.” Sophocles, Antigone
Nowadays, a lot of people have invested in a mutual fund. Because it became more popular. They think that there are low risks and also it is sample type of investment. But probably, mutual funds are not so in a real. In a recent study, Craig MacKinley (1993: p4) argued that One of the important problems of modern financial economics is the quantification of the trade-off between risk and expected return. Although common sense suggests that investments free of risk will generally yield lower returns than riskier investments such as the stock market, it was only with the development of the Sharpe-Lintner capital asset pricing model (CAPM) that economists were able to quantify these differences in returns.
By this research project we will understand how mutual fund manager work with this data. To understand how it works we will use basic CAPM model, after that Fama and French’s (1993) three-factor model and will add two addition factors: momentum factor and traded liquidity. With these models we can make some analyses. We will do analyses to find the significant factors and to check robustness of results against autocorrelation and hetroscedasticity.
MODEL 1 (CAPM).
At the first stage using the mutual fund we will run the CAPM regression and conduct appropriate tests of the CAPM.
Table 1. | | | | | | | | | | Variable | Coefficient | Std. Error | t-Statistic | Prob. | | | | | | | | | | | C | -0.004677 | 0.000554 | -8.439520 | 0.0000 | EXRM | 0.032867 | 0.012014 | 2.735859 | 0.0065 | | | | | | | | | | | R-squared | 0.016433 | Mean dependent var | -0.004529 | Adjusted R-squared | 0.014237 | S.D. dependent var | 0.011784 | S.E. of regression | 0.011700 | Akaike info criterion | -6.053978 | Sum squared resid | 0.061329 | Schwarz criterion | -6.035715 |
SUMMATIVE PROJECT
Introduction.
“There 's nothing in the world so demoralizing as money.” Sophocles, Antigone
Nowadays, a lot of people have invested in a mutual fund. Because it became more popular. They think that there are low risks and also it is sample type of investment. But probably, mutual funds are not so in a real. In a recent study, Craig MacKinley (1993: p4) argued that One of the important problems of modern financial economics is the quantification of the trade-off between risk and expected return. Although common sense suggests that investments free of risk will generally yield lower returns than riskier investments such as the stock market, it was only with the development of the Sharpe-Lintner capital asset pricing model (CAPM) that economists were able to quantify these differences in returns.
By this research project we will understand how mutual fund manager work with this data. To understand how it works we will use basic CAPM model, after that Fama and French’s (1993) three-factor model and will add two addition factors: momentum factor and traded liquidity. With these models we can make some analyses. We will do analyses to find the significant factors and to check robustness of results against autocorrelation and hetroscedasticity.
MODEL 1 (CAPM).
At the first stage using the mutual fund we will run the CAPM regression and conduct appropriate tests of the CAPM.
Table 1. | | | | | | | | | | Variable | Coefficient | Std. Error | t-Statistic | Prob. | | | | | | | | | | | C | -0.004677 | 0.000554 | -8.439520 | 0.0000 | EXRM | 0.032867 | 0.012014 | 2.735859 | 0.0065 | | | | | | | | | | | R-squared | 0.016433 | Mean dependent var | -0.004529 | Adjusted R-squared | 0.014237 | S.D. dependent var | 0.011784 | S.E. of regression | 0.011700 | Akaike info criterion | -6.053978 | Sum squared resid | 0.061329 | Schwarz criterion | -6.035715 |
References: Craig MacKinley 1993. “Multifactor model do not explain Deviation from CAPM” Carhart, Mark M. (1997). "On Persistence in Mutual Fund Performance". Journal of Finance 52 (1) Fama, Eugene F.; French, Kenneth R. (1993). "Common Risk Factors in the Returns on Stocks and Bonds". Journal of Financial Economics 33 (1): 3–56 Fama, Eugene F.; French, Kenneth R. (1992). "The Cross-Section of Expected Stock Returns". Journal of Finance 47 (2) Pastor, Lubos & Stambaugh, Robert F., 2003. "Liquidity Risk and Expected Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 111(3)