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From Ken Frenchís webpage,
https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html, download
the corresponding data sets containing the monthly Fama-French (FF) market (MKTRF), size (SMB), value (HML), investment (CMA) and proÖtability (RMW) factors, the
risk-free interest rate (RF), and the monthly (Average Value Weighted) returns for the
Öve US (United States) industry portfolios. From these select Technology and Health.
Use these data over the period January 1995 to January 2023 to answer the following
questions:
1 For each sector listed above, estimate the Fama-French three factor (FF3) model accounting for potential heteroskedasticity in the errors, over the periods:
a January 1995 to December 2010.
b January 2011 to January 2023.
Neatly report the Ötted regressions in each case (include standard errors of relevant
coe¢ cients in parentheses).
2 For the Technology portfolio, compare the coe¢ cients on the market factor obtained
from the FF3 regressions over the subperiods in Q2.1. Test whether this portfolio
tracks the market at 1% signiÖcance level in both subperiods. Clearly label all
testing steps. Comment on your results. Is there a Önancial event that can be
linked to the conclusions drawn from your observations?
3 Now use the Health portfolioís estimated regression of the Fama-French three (FF3)
model over the period January 2011 to January 2023 and run the Öve (FF5) factor
model over the same period accounting for potential heteroskedasticity in the errors.
a Test for the validity of the FF3 model over the FF5 model at 5% signiÖcance level.
Clearly label all testing steps. What conclusions do you draw?
b Comment on the coe¢ cients of the SMB and HML factors and their similarities and/or
di§erences between the FF3 and FF5 models over the period January 2011 to January 2023.
4 Test for ARCH e§ects in the residuals of the FF3 model applied to the Technology and
Health portfolios over the period January 2011 to January 2023 at 10% signiÖcance
level (use 12 lags). Clearly label all testing steps. Which assumption of the FF3
model does the ARCH test relate to? Based on your results, do you think that this
assumption is reasonable? Brieáy discuss.
Hint: You can collect your results in tables to allow space for commentary in your report.
The regression equations and testing steps can be described once.
https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html, download
the corresponding data sets containing the monthly Fama-French (FF) market (MKTRF), size (SMB), value (HML), investment (CMA) and proÖtability (RMW) factors, the
risk-free interest rate (RF), and the monthly (Average Value Weighted) returns for the
Öve US (United States) industry portfolios. From these select Technology and Health.
Use these data over the period January 1995 to January 2023 to answer the following
questions:
1 For each sector listed above, estimate the Fama-French three factor (FF3) model accounting for potential heteroskedasticity in the errors, over the periods:
a January 1995 to December 2010.
b January 2011 to January 2023.
Neatly report the Ötted regressions in each case (include standard errors of relevant
coe¢ cients in parentheses).
2 For the Technology portfolio, compare the coe¢ cients on the market factor obtained
from the FF3 regressions over the subperiods in Q2.1. Test whether this portfolio
tracks the market at 1% signiÖcance level in both subperiods. Clearly label all
testing steps. Comment on your results. Is there a Önancial event that can be
linked to the conclusions drawn from your observations?
3 Now use the Health portfolioís estimated regression of the Fama-French three (FF3)
model over the period January 2011 to January 2023 and run the Öve (FF5) factor
model over the same period accounting for potential heteroskedasticity in the errors.
a Test for the validity of the FF3 model over the FF5 model at 5% signiÖcance level.
Clearly label all testing steps. What conclusions do you draw?
b Comment on the coe¢ cients of the SMB and HML factors and their similarities and/or
di§erences between the FF3 and FF5 models over the period January 2011 to January 2023.
4 Test for ARCH e§ects in the residuals of the FF3 model applied to the Technology and
Health portfolios over the period January 2011 to January 2023 at 10% signiÖcance
level (use 12 lags). Clearly label all testing steps. Which assumption of the FF3
model does the ARCH test relate to? Based on your results, do you think that this
assumption is reasonable? Brieáy discuss.
Hint: You can collect your results in tables to allow space for commentary in your report.
The regression equations and testing steps can be described once.