Question: (a). Estimate an appropriate CAPM model describing the return of the mutual
funds as a function of some or all factors above: CRSP index, 1-month T-Bill , ExRm ,
SMB , HML , MoM and TradedLIQ. Carry out and report the necessary statistical tests to
justify the choice of your specification. Discuss any found issues with respect to omitted
(b). Compare the performances of the two funds and the exposure of the portfolios to
different risk factors by comparing relevant coefficients (such as the intercept and slopes) of
the models through appropriate tests.
The following references will be useful when you interpret and compare the coefficients.
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
Fama, Eugene F.; French, Kenneth R. (1992). “The Cross-Section of Expected Stock
Returns”. Journal of Finance 47 (2)
Pastor, Lubos & Stambaugh, Robert F., 2003. “Liquidity Risk and Expected Stock Returns,”
Journal of Political Economy, University of Chicago Press, vol. 111(3)
End of Project A
Use the Dataset_#fish.xls corresponding to your Z#####.
In this project you will estimate the demand for Cod (a saltwater fish). To complete this
assignment, you will use the 300 weekly observations on the quantity of Cod purchased, the
price of Cod, the price of Chicken, the price of Beef, Weekly Income, the average body mass
index (BMI), and the average water temperature in the North Atlantic Ocean (where Cod are
cultivated). You will find these 300 observations in the Dataset_#fish.xls file.
(a) Produce a scatterplot of price and quantity demanded of Cod. Set aside the
variable “average water temperature.” Estimate the household demand function
for Cod as a function of the price of Cod, Weekly Income, the price of Beef, and
some or all of the other provided variables. Carry out and report the necessary
statistical tests to choose your specification. Report the estimated own price
elasticity, estimated income elasticity of demand, and the cross-price elasticity of
demand with Beef. Discuss any found issues with respect to omitted variable
(b) Suppose the price of Cod is determined by simultaneous solution of the market
supply and demand of Cod. Discuss how this is problematic for your estimate of
the own price of elasticity for Cod. Use the variable “average water temperature”
to obtain a new estimate of the own price elasticity of Cod. Evaluate whether
“average water temperature” is an appropriate instrument.
End of Project B
Overall word limit, 1000 words maximum.
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