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Introduction The aim of this assignment was to investigate market education by dint of the application of as fix pricing theories specifically the Fama French 3 Factor model. The validating mover loadings that we obtained for the SMB and HML factors were in line with those rear by Fama and French (2001). We examined the literature to apologize the reasons underlying these positive factor loadings. Portfolios were then constructed based upon single volatility and we prove that high idiosyncratic volatility resulted in higher hackneyed give births. These results were in line with those by Malkiel and Xu (2004) which suggested that higher idiosyncratic danger of infection may result in higher returns. Finally we examined our portfolio returns by using portfolio performance measures much(prenominal) as Sharpe, Sortino and Treynor ratios. Our analysis was conducted in seven key go and the structure of the report is set out below: 1. categorization and cleansing the data We eliminated duplicated data and checked for missing values. 2. calculating returns we calculated returns on all(prenominal) of the 296 stocks, the market index and the take a chance eject rate. 3.

Fama French factor loadings Using the returns calculated, we ran a multifactor regression by using Fama and French model to estimate the beta coefficients for to each one of the three explanatory variables, such as Rm,t , SMBt and HMLt. 4. calculate idiosyncratic risk we utilize the calculated beta coefficients for Rm,t , SMBt and HMLt to predict the return of the stock. The idios yncratic risk is the standard deviation of t! he difference between predicted return and true return. 5. Forming portfolios Portfolios were organize on the rear blockade of idiosyncratic risk. At the run short of each month, the pass off 10 stocks sorted on the basis of idiosyncratic risk formed the first portfolio. The bottom 10 stocks sorted on the basis of idiosyncratic risk formed the second portfolio. 6. Calculating portfolio returns the portfolios were held for...If you want to get a undecomposed essay, order it on our website: OrderCustomPaper.com

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