Economics Homework Help

You will find in the Announcement board two spreadsheets, created from Ken French’s website: http://mba.tuck.dartmouth.edu/pages/faculty/ken.fr…

with the Fama-French 5 factors

Mkt-RF; SMB; HML; RMW; CMA; and the risk free rate (RF) for

1. a portfolio of Developed Markets stock (developedmarkets.xls) and a

2. a portfolio of Emerging stocks over the period from July 1997 to January 2021 .

The factors are defined and explained on Kenneth web’s website

Assume these factors are investable assets.

Analyze each portfolio (Developed Markets and Emerging Markets) separately:

a) Do a test for normality of these factors.

b) Which of the six factor return series appears to dominate for a risk averse investor

based on:

i. Compound Return

ii. Average annual return

iii. Maximum return

iv. Minimum return

v. Standard deviation of returns

How would your answers change if you focus on the period since the declaration of the COVID-19 pandemic in March 2020 to January 2021?

c.) Suppose a mean-variance preference investor holds the Developed Market Portfolio, and uses this portfolio as a benchmark. Should the optimizing mean-variance preference investor add

3

the Emerging Markets Portfolio to her holdings? (Hint: run a simple spanning regression test using the data for part III for the period July 1997 to Janaury 2021)).