Comparison of mutual funds
Econometrics 1 Anonymous ID: Z0945574 Summative Assignment
Introduction
Econometric models are statistical models in econometrics. Investors can use alpha and beta to judge manager’s performance but fund managers had style timing opportunities apart from market timing, such as size, growth and momentum timing. (Car hart, 1997)
The six portfolios meant to minimize underlying risk factor in returns related to size& book-to-market equity. (Fama, et al. 1993)
The variable name and description for regression of CAPM, 3-factor, 4-factor and 5- factor models are:
Variable Names
Description
MF1_RF
Returns of the mutual fund 1
MF2_RF
Returns of the mutual fund 2
RM
Market Index
RF
Risk free rate
RM_RF
CRSP index 1-month T-Bill
SMB
Small (market capitalization) minus big factor
HML
High (book-to-market ratio) minus low factor
MOM
Momentum factor
TRADEDLIQ
Traded liquidity factor
Car hart, Mark M. employed two models of performance measurement: CAPM and 4-factor model. 4-factor model is consistent with a model of market equilibrium. (Car hart, 1997)
CAPM uses a single factor, beta to compare a portfolio with the market as a whole. (Car hart, 1997) RI - RF = αI + βI (RM - RF) + €I
RI : return on stock I
RM : return on market portfolio
RF : risk free rate
Table 1a: Regression Capm_1
Dependent Variable: MF1_RF
Method: Least Squares
Date: 12/04/13 Time: 19:33
Sample: 1450
Included observations: 450
Variable
Coefficient
Std. Error t-Statistic Prob.
C
1.010066
0.01528
63.81376
0.0000
RM_RF
2.287748
0.34307
6.667923
0.0000
R-squared
0.090284
Mean dependent variable
1.0209
Adjusted R-squared
0.088253
S.D. dependent variable
0.3499
S.E. of regression
0.334150
Akaike info criterion
0.6493
Sum squared residual
50.02209
Introduction
Econometric models are statistical models in econometrics. Investors can use alpha and beta to judge manager’s performance but fund managers had style timing opportunities apart from market timing, such as size, growth and momentum timing. (Car hart, 1997)
The six portfolios meant to minimize underlying risk factor in returns related to size& book-to-market equity. (Fama, et al. 1993)
The variable name and description for regression of CAPM, 3-factor, 4-factor and 5- factor models are:
Variable Names
Description
MF1_RF
Returns of the mutual fund 1
MF2_RF
Returns of the mutual fund 2
RM
Market Index
RF
Risk free rate
RM_RF
CRSP index 1-month T-Bill
SMB
Small (market capitalization) minus big factor
HML
High (book-to-market ratio) minus low factor
MOM
Momentum factor
TRADEDLIQ
Traded liquidity factor
Car hart, Mark M. employed two models of performance measurement: CAPM and 4-factor model. 4-factor model is consistent with a model of market equilibrium. (Car hart, 1997)
CAPM uses a single factor, beta to compare a portfolio with the market as a whole. (Car hart, 1997) RI - RF = αI + βI (RM - RF) + €I
RI : return on stock I
RM : return on market portfolio
RF : risk free rate
Table 1a: Regression Capm_1
Dependent Variable: MF1_RF
Method: Least Squares
Date: 12/04/13 Time: 19:33
Sample: 1450
Included observations: 450
Variable
Coefficient
Std. Error t-Statistic Prob.
C
1.010066
0.01528
63.81376
0.0000
RM_RF
2.287748
0.34307
6.667923
0.0000
R-squared
0.090284
Mean dependent variable
1.0209
Adjusted R-squared
0.088253
S.D. dependent variable
0.3499
S.E. of regression
0.334150
Akaike info criterion
0.6493
Sum squared residual
50.02209
References: Car hart, Mark M. (1997). “On persistence in Mutual Fund Performance”. Journal of Finance 52(1) Fama, Eugene F.; French, Kenneth R. (1993). “Common Risk Factors in the Returns on Stocks and Bonds”. Journal of Financial Economics 33 (1): 3-56 William F. Sharpe. (1963).Management Science,vol.9,issue 2,pp.277-293 So per, D.S. (2013). F-Value and p-Value Calculator for Multiple Regressions [Software]. Available from http://www.danielsoper.com/statcalc