Quantitative Methods in Finance

Quantitative Methods in Finance

Quiz 5 November 20, 2020 Name: ________________________

Quiz 5

The sarcasm is unconcealed body, unconcealed notes, unconcealed computer. Answer each investigation providing minute explanations of your answers, including any comprised steps and the formulas/concepts used. Quizzes may be suggestted to the Sarcasm 5 Submission folder in D2L as .docx, .pdf, or .xlsx. You may use divergent formats for divergent investigations if you wish. Fascinate suggest your sarcasm finish(s) using the naming treaty “FIN 617 FQ 2020 Sarcasm 5 <last name> <first name>”. If you suggest an Excel finish, fascinate instrument your formulas after a occasion citation comments. Formulas embedded in cells earn not respect as showing your effect. Also, if you suggest an Excel finish, fascinate use a disjoined tab for each investigation and delineation the citation of the investigation into that tab at the top.

1. (16 points) Using pityly mean CPI condemnation facts from March 1980 through March 2020, you admonish the pity aggravate pity vary in the CPI condemnation and respect an AR(1) design for the train of varys in the pityly CPI condemnation:

Regression statisticsAutocorrelations of the Residual
R-squared0.065771Lag 1-0.041804
SEE0.006621Lag 2-0.023911
Observations159Lag 30.215020
Lag 40.071199
CoefficientStd Error
Intercept0.0053910.000761
Lag 10.2480920.074623

a. Admonish the t-statistics for the retirement coefficients and the residual autocorrelations

b. Are the retirement coefficients for the stop and/or lag 1 speaking at the raze?

c. Does this facts train illustadmonish seasonality?

d. Are the residuals serially correlated?

e. Is this design justly fixed? Why or why not?

2. (10 points) Wear that the subjoined one-ingredient macroeconomic design describes the expected yield for portfolios: Also wear that all investors coincide on the expected yields and ingredient sensitivity of the three very-much diversified Portfolios A, B, and C fond in the subjoined consultation:

PortfolioExpected ReturnFactor Sensitivity
A0.090.50
B0.130.75
C0.171.50

If the design and the consultation are twain rectify, determine whether or not an arbitrage convenience exists. If not, why not? If so, illustadmonish how to feat it.

3. (10 points) An bombardment immovable uses the Carhart-Fama-French Design to course the enterprise of the portfolio managers in the immovable. In 2019, the lavish-free admonish of yield was 2.2% and the yield on the S&P 500 (a representative for the aggregate communicate) was 28.9%. An freely managed wide cap portfolio earned 32.8%, occasion the benchmark portfolio it was compared to earned 31.2%. The betas for the benchmark portfolio and the freely managed portfolio are:

Betas
Risk Factorbenchmark portfoliomanaged portfolioingredient yield
Market lavish (RMRF)1.001.05?
Small cap stocks (SMB)-0.50-0.70-5.90%
Value stocks (HML)0.200.40-6.35%
Momentum stocks (WML)0.100.206.44%

a. What is the free yield on the managed portfolio?

b. What is the ingredient yield for communicate lavish (RMRF)?

c. What relation of the free yield is due to the communicate lavish tilt?

d. What relation of the free yield is due to the wide cap stocks tilt (the tilt loose from diminutive cap stocks)?

e. What relation of the free yield is due to the appraise stocks tilt?

f. What relation of the free yield is due to the momentum stocks tilt?

g. What relation of the free yield is due to the manager’s election of personal stocks?

a. (5 points) Define the subjoined terms:

a. Ingredient lavish premium

b. Unit root

c. Random trudge after a occasion drift

d. Standardized beta

e. ARCH

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