HW6 - portfolio 2 located relative to the SML line b What...

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Purdue University Krannert School of Management MGMT 411: INVESTMENTS Assignment #6 Due: October 20 No late assignments will be accepted. 1. Download the Excel file called “testing CAPM_HW6” from our course site. The spreadsheet “momentum” contains the monthly returns of 10 portfolios sorted by past six-month return, as well as the market and the T-bill rate. The portfolio called “Losers” consists of the bottom 10% of stocks in terms of past six-month returns, portfolio 2 consists of stocks whose past six-month return is between the bottom 10% and 20%, etc. a) What is the CAPM alpha of portfolio 2 and is it significantly different from zero? What is the CAPM beta of portfolio 2 and is it significantly different from zero? Where is
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Unformatted text preview: portfolio 2 located relative to the SML line? b) What is the CAPM alpha of portfolio 9 and is it significantly different from zero? What is the CAPM beta of portfolio 9 and is it significantly different from zero? Where is portfolio 9 located relative to the SML line? c) Why are the results for parts (a) and (b) considered anomalous relative to the CAPM? 2. The spreadsheet “testing CAPM_HW6” also contains the monthly returns of a portfolio consisting of small stocks (“Small”). Show that the small portfolio performs better in January than the rest of the year, after adjusting for market risk? (Hint: use the Dummy variable method we discussed in class)....
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