Lecture #23 - Ec 136, Financial Economics Lecture 23...

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Unformatted text preview: Ec 136, Financial Economics Lecture 23 November 24 Outline for today 1. Multifactor models and Fama-French model 2. LSV view 3. Forwards and futures www.econ.berkeley.edu/~szeidl/ec136/ec136index.htm Readings: BKM Chapter 22.1-22.4 Problem set 8 : due December 3. 1. Multifactor models & Multiple sources of common movement (risk) af- fect returns: R i R f = = & i + i 1 & R 1 R f + ::: + iK & R K R f + " i = & i + K X k =1 ik & R k R f + " i : & Here betas capture exposure to K underlying sources of risk. & Assume &rm-speci&c errors are idiosyncratic: E h " i " j i = 0 for i 6 = j: & Model predicts & i = 0 for most stocks: E R i R f = i 1 & E R 1 R f + ::: + iK & E R K R f Fama-French three-factor model & For each asset i , run regression R i R f = = & i + i 1 & R m R f + i 2 HML + i 3 SMB + " i { HML = R high R low excess return of value over growth { SMB = R small R big excess return of small...
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This note was uploaded on 09/02/2010 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.

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Lecture #23 - Ec 136, Financial Economics Lecture 23...

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