Discuss the differences between CAPM and Fama-French 3-factor models and how it affects your analysis. Maximum length of the report is. [ad_1]
In worksheet “Task 1” of the Excel file provided, model a two-asset portfolio and examine the risk and return characteristic of a two-asset portfolio – using the data provided. In this worksheet, evaluate the portfolio’s return, risk and utility of the following three scenarios, assume the risk-aversion coefficient to be 6: i) When correlation coefficient between the two assets is -1.0 ii) When correlation coefficient between the two assets is 0.5 i) When correlation coefficient between the two assets is 1.0 Answer the questions in the case study quiz on iLearn using the result from the above analysis. 3.
Use the information on worksheet “Task 2”, write a report addressing the following: 1. Using CAPM model to evaluate each stock. Rank their performance by alpha and information ratio(IR). IR is defined by (Excess Return)/(Tracking Error in SD) 2. Repeat the above by using Fama-French 3-factor model. Note: You can create extra worksheets for your analyses. You can obtain the risk free rate, market risk premium, and the Fama-French 3 factors from French Library
Write a report on the findings you obtained in Task 2. Explain briefly the two models you used. Discuss the differences between CAPM and Fama-French 3-factor models and how it affects your analysis. Maximum length of the report is 2 pages, excluding cover page, content page, appendix or references.
You are required to submit your spreadsheet and report on iLearn. 1. Report The maximum length of your report is two pages – can be less. A third page or more, the appendix or references, can contain only figures and tables that can be referenced in the body of your report (i.e., pages 1 and 2) simply by Fig.1 or Table.1. The marker may choose to ignore any content of the report that is non-conforming. Space constraints may mean that not all topics can be fully covered in your response and you may need to prioritise your findings. 2. Case Quiz Answer the case quiz questions using your Excel Spreadsheet Analysis. Your answers must be rounded to two decimal places. Please ensure that you link your spreadsheet analysis to source figures. If you enter figures that are calculated elsewhere in the spreadsheet rather than refer to the figure you will create rounding errors. This means that your quiz response may not be exactly correct and will therefore not be marked as the correct quiz answer. Marking will occur after the quiz has closed – there is no feedback to your answer whilst the quiz is open. 3. Excel Spreadsheet Use the excel spreadsheet provided. Your spreadsheet should be shown with formula i.e. do not hard code values prior to submitting (e.g., leave figures as formula as appropriate). Your assignment will score zero if the spreadsheet does not provide the supporting information used in the Report and/or the quiz responses.