Homework SourseYou are given the following regression statistics sort of RB
You are given the following regression statistics (sort of RBSA) on severalmutual fund’s and indexes. These statistics are based on monthly data from the 1984–1993 period and the units are % per month. All regressions were performed using raw returns.
a. How would you categorize the objectives of fund C? Explain!
b. Estimate the abnormal performance for fund C given the above data.
c. What is your assessment of Fund B’s objective? Explain
| INDEX | R | s | a | b1 | b2 | b3 | R2 |
| S&P 500 Index(b1) | 1.270 | 4.475 | 0.000 | 1.000 | 0.000 | 0.000 | 1.000 |
| Wilshire 4500 (b2) | 1.120 | 4.690 | 0.000 | 0.000 | 1.000 | 0.000 | 1.000 |
| Merrill Lynch Corporate Bonds (b3) | 1.029 | 1.669 | 0.000 | 0.000 | 0.000 | 1.000 | 1.000 |
| FUND | R | s | a | b1 | b2 | b3 | R2 |
| Fund A | 0.780 | 1.144 | 0.201 | 0.001 | -0.025 | 0.589 | 0.698 |
| Fund B | 1.063 | 1.986 | 0.467 | -0.288 | 0.439 | 0.456 | 0.447 |
| Fund C | 1.105 | 5.347 | -0.196 | 0.552 | 0.588 | -0.057 | 0.912 |
| Fund D | 1.599 | 7.685 | 0.126 | 0.184 | 1.346 | -0.260 | 0.821 |
Solution
You are given the following regression statistics (sort of RBSA) on severalmutual fund’s and indexes.
These statistics are based on monthly data from the 1984–1993 period and the units are % per month.
All regressions were performed using raw returns.
a. How would you categorize the objectives of fund C? Explain!
The regression equation is,
Y = -0.196 + 0.552*x1 + 0.588*x2 -0.057*x3
There are three predictors.
R2 = R squared = 0.912 = 0.912*100 = 91.2%
It expresses the proportion of the variation in Y which is explained by variation in X1, X2 and X3.
For fund B the reregression equation is,
Y = 0.467 - 0.288*x1 +0.439*x2 +0.456*x3
