Question

1. Report the average of HML. What is the standard error of this estimate? What is the 95% confidence interval? Is the average of HML statistically different from 0?

2. Report the CAPM beta and alpha of the HML portfolio. Are these estimates statistically significant? What are the possible economic sources of this alpha?

3. Are the results in (1) or (2) better evidence that a strategy that is long value and short growth generates abnormal returns? Why?

	Mkt-RF	SMB	HML	RF
	4.93	3.11	2.29	0.25
	-2.42	0.38	2.26	0.23
	3.06	-2.55	2.14	0.23
	4.49	-1.33	1.1	0.25
	1.77	1.09	2.77	0.24
	-2.03	-0.26	0.79	0.23
	-0.44	-0.5	-0.95	0.27
	5.02	-1.03	1.78	0.25
	-1.46	-0.34	0.21	0.27
	2.48	-0.55	-0.03	0.29

Answer 1

For HML

mean	1.236
sd	1.214598
n	10

average = 1.236

standard error = sd/sqrt(n) = 1.2146/sqrt(10) = 0.3841

(Xbar +- t* s /sqrt(n))

t-value based Population MEAN Confidence Interval mean = 1.236 standard deviation = 1.214598 sample size = confidence level = 95% Number of Decimals in Results = 4 Critical t-value = 2.262157 Confidence Interval = 1.236 +/- 0.868871240223551 = (0.367128759776449, 2.10487124022355) (0.3671, 2.1049) We are 95% confident the true population mean is between 0.3671 and 2.1049.

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