Value-oriented and growth-oriented stocks

Assignment Help Financial Management

Reference no: EM133906139

Chapter 9, Thomson Reuters

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 multifactor model. The proxies you choose are the Russell 1000 Value Index and the Russell 1000 Growth Index, respectively.

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

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

3. 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?

4. 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?

5. 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: EM133906139

Questions Cloud

One potential challenge associated with delta hedging : What is the continuously compounded 10-month zero rate? Explain one potential challenge associated with delta hedging.

Discuss concept by providing real organizational example : "Organizations are thought as an open system". Discuss this concept by providing real organizational example.

What is Mutual Fund-Market Timing or Late trading : What is Mutual Fund - Market Timing or Late trading? What are its advantages and disadvantages?

What is equilibrium forward exchange rate : What is the equilibrium forward exchange rate that would make the GBP earnings the same as the US?

Value-oriented and growth-oriented stocks : You would like to evaluate the historical relationship between value-oriented and growth-oriented stocks that form the basis for the HML risk factor

Company involved in lithium mining : Green Technology Metals Ltd (ASX : GT1) is company involved in lithium mining. Give two reasons Why RAROC is appealing to FIs as model for assessing credit risk

Evaluate proposal to buy new milling machine : You must evaluate a proposal to buy a new milling machine. What are the project's annual net cash flows during Years 0 through 3?

Mobile technology provider : Utah Technologies, a mobile technology provider, just paid a dividend of 1.35 per share. The company plans to increase its dividends by 3% each year

Stock repurchase carries information content : A stock repurchase carries information content. What is the total value of your stock? What will the total value of your shares be after reverse stock split?

User Account

All Pages