What you conclude about viability of long value short growth

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You would like to evaluate the historical relationship between value-oriented and growth- oriented stocks that form the basis for the HML risk factor in the Fama-French multifac- tor model. The proxies you choose are the Russell 1000 Value Index and the Russell 1000 Growth Index, respectively.

a. Under the "Indices" tab, download weekly price information for the five-year period from February 27, 2006, to February 25, 2011, for each index.

b. For each index, calculate the set of weekly returns that correspond to these weekly price series.

c. Calculate the average weekly return and the return standard deviation for each index series. Which equity investment style (i.e., value versus growth) appears to have been the most successful over this sample period?

d. Suppose that you are considering forming a hedge fund employing a strategy of always being long in value stocks and short in growth stocks. Evaluate the potential success of this strategy by taking the difference in returns between the value and growth indexes you analyzed above. What is the average return and return standard deviation for the return differential series?

e. Plot the return differential series you calculated in Part d, using the return differential on the vertical axis and time on the horizontal axis. What do you conclude about the viability of the "long value, short growth" investment strategy?

Reference no: EM13924384

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