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problemset8 - Problem Set 8 Ec 136 Fall 2009 This problem...

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Problem Set 8 Ec 136, Fall 2009 This problem set is due Thursday, December 3. Sorry, no late problem sets are accepted! All students must submit problem sets individually. Write your name, section time and GSI on the front page of your solution. 1. CAPM test This question asks you to test CAPM by looking at the historical performance of small stocks and value stocks using Excel. The data are in CAPM_data.xls on the course website. We will focus on °ve risky assets: four stock portfolios called small-low, small- high, big-low, big-high, and a value-weighted stock index that we will treat as the market portfolio. Here ±small² and ±big² refer to market capitalization, while ±low² refers to growth stocks (low book-market ratios), and ±high² refers to value stocks (high book- market ratios). Thus for example the small-low portfolio is a portfolio of growth stocks with small market capitalization. The data set runs from January 1930 to December 2004 and contains excess returns R i ° R f (where R f is the return on 90-day Treasury bills) for all °ve risky portfolios. In parts a)-f) of this problem we will focus on the period 1/1930-12/1963 only. a) Download the data from the course website. What are the average excess returns for the °ve risky portfolios during 1/1930-12/1963? Use Excel to compute your answers in row 6, columns I-M.
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