EF501 Applied Econometrics Assignment

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EF501 Applied Econometrics Assignment - Dublin City University, Ireland

This assignment is based on Fama and French (2012); Asness et al. (2013); Fama and French (2017) who examine linear factor models with international data. The same methodology is used in Fama and French (2015, 2016) for U.S. market data. The data for this assignment were obtained from Kenneth French's data library. The format and content of the data files are explained in the sample program file.

The assignment is to compare the pricing of the six factor model Mkt, SMB, HML, RMW, CMA, WML for four different markets (US, europe, japan, emerging markets). The first five factors are explained in Fama and French (2017) and the momentum factor WML is explained in Fama and French (2012, 2016). For the test assets, we use 5[1]5 portfolios sorted by size-momentum used in Fama and French (2012). For this assignment, use the full available monthly sample.

(a) Present summary statistics for the risk factors and for the 5 x 5 test portfolio excess returns. For the risk factors, replicate panels A and C of Fama and French (2017, Table 1, p.445) for the four markets US, europe, japan, emerging markets. Highlight or explain any noticeable differences from the results reported in Fama and French (2017, Table 1, p.445). When you present your summary table, pay particular attenion to how the table is 'properly' displayed in Fama and French (2017, Table 1, p.445). Does your table have a proper caption? Have you not displayed too many digits in your table just because the 'computer' printed all those digits?

Present average monthly excess returns for the size-momentum sorted portfolios by market as in Fama and French (2017, Table 2, p.447). In addition to the mean also display the t-ratio for the mean as in Fama and French (2017, Table 1, p.447). Are these results consistent with those you found in the risk factor summary results?

(b) Fama and French (2017, Table 3, p.449) reports results for factor redundancy (spanning) tests using five factors. Report results for factor redundancy tests using six factors for each of the four markets. Highlight or explain any noticeable differences from the results reported in Fama and French (2017, Table 3, p.449).

Explain how to test whether the six US factors span factors in other non-US markets. Carry out the tests and report your results in a single table similar to Fama and French (2017, Table 3, p.449). What do you find? Are your results consistent with the sample correlations you reported in part (a)?

(c) Carry out the asset pricing tests using the first pass time series regressions. First do the test for each market separately. Then test whether the US six factors can price the test portfolio returns in other non-US markets. Your evaluation and comparison should focus on the cross-sectional implications of the first pass time series regressions.

Attachment:- Applied Econometrics Assignment Files.rar

Reference no: EM132555438

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