Problem set #8 Solution

Problem set #8 Solution - Problem Set 8 Solutions Econ 136...

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Unformatted text preview: Problem Set 8 Solutions Econ 136, Fall 2009 A note about grading: 5: no major or minor errors 4: no more than a few minor errors 3: a major or many minor errors 2: multiple major errors 1: multiple major errors and portions left blank 0: blank or never turned in. 1 CAPM Test Parts (a) to (e): Low High Low High Market a) mean excess ret 1.13 1.45 0.78 1.21 0.82 b) beta 1.2559704 1.5307014 0.9269296 1.4415309 1 c) alpha 0.0960846 0.1903928 0.0158963 0.0274191 d) CAPM pred. excess ret 1.0327894 1.2587018 0.7622179 1.1853765 0.8223039 e) Actual-Predicted 0.09608 0.19039 0.01590 0.02742 0.00000 Small Big f) CAPM works fairly well for the five test portfolios considered here during the period before 1964. 0.80 0.90 1.00 1.10 1.20 1.30 1.40 1.50 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 Actual Returns CAPM Predic<on 1 g) CAPM fails in the data for the more recent period since 1964. This is consistent with what we discussed in class about the value and size effects. Intriguingly, the CAPM equation was discovered around 1963.in class about the value and size effects....
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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 Berkeley.

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Problem set #8 Solution - Problem Set 8 Solutions Econ 136...

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