Value-Weighted Total Returns (with Dividends) on 25 Fama-French

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Hafsa Hassan; 20120037, Asset Pricing Assignment No. 2 Due Date: 14th Dec 2012 This paper examines the monthly data on the value-weighted total returns (with dividends) on 25 Fama-French portfolios, from July 1926 to Sep 2012 to sorted by size and BE/ME value, from the K French Data Library, and performs the Fama-Macbeth (1973) CAPM test on size and value effects. The average return and standard deviations are shown in Table I: Table I: Average returns and standard deviations of the 25 portfolios, from 07/1926 to 09/2012. There are a total of 1035 observations. | Portfolios| 1(Low)| 2| 3| 4| 5 (High)| 6(Low)| 7| 8| 9| 10(High)| Mean Return| 0.73| 1.09| 1.30| 1.45| 1.67| 0.87| 1.23| 1.31| 1.36| 1.47| Standard dev.| 12.19| 10.54| 9.19| 8.61| 9.54| 7.96| 7.85| 7.32| 7.59| 8.72| Portfolios| 11(Low)| 12| 13| 14| 15 (High)| 16(Low)| 17| 18| 19| 20(High)| Mean Return| 0.96| 1.16| 1.26| 1.28| 1.42| 0.98| 1.03| 1.13| 1.22| 1.33| Standard dev.| 7.63| 6.59| 6.74| 6.81| 8.60| 6.23| 6.28| 6.40| 6.99| 8.94| Portfolios| 21(Low)| 22| 23| 24| 25 (High)| | | | | | Mean Return| 0.89| 0.89| 0.94| 0.99| 0.06| | | | | | Standard dev.| 5.46| 5.22| 5.73| 6.88| 13.19| | | | | | Fig,1:Average returns vs Portfolio (1-25)| Fig 2:Standard deviation vs Portfilio No.| Fig. 3: Stand. dev against Average returns| | | |

Average returns are positive over the 97 year period, and range from $0.06 to $1.67. Standard deviations tend to be much higher, from 5.3 to 13.2, but this is expected as we have a large period. Fig.1 shows that low size (ME) portfolios tend to have lower mean returns than large size ones, but no similarly strong trend is observed for standard deviations. It is noted, in Fig. 3, that excluding the three portfolios with the largest standard deviations, average returns tend to be higher for portfolios with higher standard deviations.

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