1

3
4

6
7
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9
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Q1

Q2

Q3

Q4

12
13

14

15

Q5

Q6

Q7
16

Please Enter Your Student ID Here ------>

Once you have entered your student ID above, you should see data on the "Data" worksheet. The data consists
of a few monthly time series with month-end dates in column B. The series start in January 2003 and end in
December 2008. There is empty space separating year 2008 from earlier data because you will use earlier data
The first time series in column C is the excess return on the market, that is, the market return minus the riskfree rate. Next, the Fama-French factors: SMB (return on small stocks minus return on big stocks) in column D
and HML (return on high book-to-market stocks minus return on low book-to-market stocks) in column E.
Column F consists of the momentum factor UMD (return on up stocks up in the past minus return on stocks
down in the past. Column G provides the risk-free return in each month.
Columns I to K provide monthly returns for three stocks. You can use any blank area of that worksheet for your
calculations. You can also create and edit other worksheets in this spreadsheet or copy the data to another
spreadsheet for your calcuations. Or if you are comfortable with some other statistical page, you can copy the
First you need to determine the characteristics of your stocks based on the data from 2003-2007. That is, you
have to estimate how does the excess return on each stock return varies with the excess return on the market,
the Fama-French factors, and the momentum factor. Here are the steps:
Calculate in some blank column the excess return on your stock by subtracting the risk-free rate (column G)
from your stock's return (column I, J, or K).
Next perform a regression of the excess return on the 4 factors: excess return on market, SMB, HML, and
UMD. For this, you can use Excel's Data Analysis feature.
There are two ways of running regression in Excel. You can use linest function after reading its description in
help. Or you can use data analysis tool. If you use Excel 2007, please go to data tab and look at the rightmost
column for data analysis. If you don't see that, click the Microsoft Office Button (at top left), and then click
Excel Options. Click Add-Ins, and then in the Manage box, select Excel Add-ins. Click Go. In the Add-Ins available
box, select the Analysis ToolPak check box, and then click OK. After you load the Analysis ToolPak, the Data
Analysis command is available in the Analysis group on the Data tab. If you use a version of Excel earlier than
Excel 2007, please go to tools menu to find "Data Analysis." If you don't see data analysis, please choose "AddDo not force constant (intercept) term to be zero. You may specify the regression output to be in the same
worksheet or in a new worksheet.
See the "Example" tab for an example of such a regression. You will need to perform three regressions, one for
each stock. Now answer the following questions:
The regression coefficient on the excess return on market is the stock's sensitivity to market, its market beta.
What is WALGREEN CO (WAG)'s market beta? Does it have more market risk or less market risk than an
average stock?

The regression coefficient on SMB factor shows whether the stock acts like a small stock or a big stock and is
called its SMB beta. A positive coefficient suggests that the stock acts more like a small stock than an average
stock while a negative coefficient suggests that the stock acts more like a big stock than an average stock.
What is TIVO INC (TIVO)'s SMB beta? Does it act like a small stock or a big stock?

The regression coefficient on HML factor shows whether the stock acts like a value stock with high book-tomarket or a growth stock with low book-to-market ratio and is called its HML beta. A positive coefficient
suggests that the stocks acts more like a value stock than an average stock while a negative coefficient
What is SPSS INC (SPSS)'s HML beta? Does it act like a value stock or a growth stock?

The regression coefficient on UMD factor measures how sensitive the stock's return is to momentum and is
called its momentum beta. A more positive coefficient suggests that the stocks return is more sensitive to
momentum than an average stock while a negative coefficient suggests the stock return is less sensitive to
momentum than an average stock. Sensitivity to momentum means that stock will perform well when
momentum is higher (past winners continue to do well and past losers continue to do poorly) and perform
What is WALGREEN CO (WAG)'s UMD beta? Is it more or less sensitive to momentum than an average stock?

Now, you will test if the regression relation based on data from 2003 to 2007 continues to explain returns in
2008 too. First note that in efficient markets, predicting stock returns is very difficult because the models
predict only the systematic component of return but a significant variation in returns occurs due to
idiosyncratic news which are not incorporated in prediction model. Thus, no model can provide very precise
forecasts. Four factor model is supposed to be one of the better models but even this doesn't work very well at
individual stock level as the model cannot anticipate the events that influence the return of a particular stock.
Since monthly stock returns vary a lot due to idiosyncratic risk, instead of predicting returns in a particular
month, predict average monthly returns for your stocks in 2008. For this, use the regression results and the
average values of the four factors and the risk-free rate in 2008. Note this is not true prediction because we are
First calculate the average monthly value of the four factors and the risk-free rate in 2008 by taking averages of
12 monthly values for each of the columns C to G.
Now calculate predicted average monthly return of a stock by multiplying its market beta with average excess
return on market, multiplying its SMB beta with average SMB value, multiplying HML beta with average HML
value, multiplying UMD beta with average UMD value, adding all four products, adding the intercept from
That is, predicted return = intercept + market beta * average MKTRF + SMB beta * average SMB + HML beta *
average HML + UMD beta * average UMD + average RF
See the "Example" worksheet for an example. Calculate the predicted average monthly return for each stock
and compare it to the actual monthly average return in 2008. Do this for all three stock and answer the
What is the difference between the predicted average monthly return and the actual average monthly return
for WALGREEN CO (WAG)? This captures the size of idiosyncratic component of return. Report only the
magnitude (that is report 0.3456% as 0.3456% and -0.5432% as 0.5432%).
What is the difference between the predicted average monthly return and the actual average monthly return
for TIVO INC (TIVO)? This captures the size of idiosyncratic component of return. Report only the magnitude
(that is report 0.3456% as 0.3456% and -0.5432% as 0.5432%).

What is the difference between the predicted average monthly return and the actual average monthly return
for SPSS INC (SPSS)? This captures the size of idiosyncratic component of return. Report only the magnitude
(that is report 0.3456% as 0.3456% and -0.5432% as 0.5432%).
Save this spreadsheet on a computer and then submit your assignment in Blackboard by uploading this

1153911

0.346118667 <-- Market Beta

<-- More / Less
Less
Market Risk

1.333525577 <-- SMB Beta

Small

<-- Small / Big Stock

0.826873977 <-- HML Beta

Value
<-- Value / Growth

0.019773085 <-- UMD Beta

<-- More / Less
Sensitive to
More
Momentum

1.89994%

<-- Difference

5.5958%

<-- Difference

3.90244%

<-- Difference

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.25389
R Square
0.06446
Adjusted R Square
-0.00358
Standard Error
0.05528
Observations
60
ANOVA
df
Regression
Residual
Total

SS
MS
F
Significance F
4 0.011581 0.002895 0.947399 0.443718
55 0.168074 0.003056
59 0.179655

Coefficients
Standard Error t Stat
Intercept -0.00157 0.007834 -0.19985
MKTRF
0.346119 0.332153 1.042047
SMB
-0.01862 0.395802 -0.04705
HML
0.667663 0.441315 1.512896
UMD
0.019773 0.243763 0.081116

P-value Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
0.842334 -0.01726 0.014133 -0.01726 0.014133
0.301949 -0.31953 1.011767 -0.31953 1.011767
0.962645 -0.81183 0.774583 -0.81183 0.774583
0.136032 -0.21675 1.552078 -0.21675 1.552078
0.935644 -0.46874 0.508286 -0.46874 0.508286

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.398899
R Square 0.159121
Adjusted R Square
0.097966
Standard Error
0.176261
Observations
60
ANOVA
df
Regression
Residual
Total

SS
MS
F
Significance F
4 0.323347 0.080837 2.601928 0.045774
55 1.708741 0.031068
59 2.032088

Coefficients
Standard Error t Stat
Intercept 0.006313 0.024978 0.252733
MKTRF
1.721172 1.059071 1.625172
SMB
1.333526 1.262017 1.056662
HML
-1.61552 1.407136 -1.14809
UMD
0.138822 0.777242 0.178609

P-value Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
0.801417 -0.04374 0.056369 -0.04374 0.056369
0.109843 -0.40125 3.843599 -0.40125 3.843599
0.295285 -1.19561 3.862664 -1.19561 3.862664
0.2559 -4.43549 1.204442 -4.43549 1.204442
0.858901 -1.41881 1.69645 -1.41881 1.69645

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.591405
R Square
0.34976
Adjusted R Square
0.30247
Standard Error
0.08975
Observations
60
ANOVA
df
Regression
Residual
Total

SS
MS
F
Significance F
4 0.238301 0.059575 7.396032 7.68E-05
55 0.443026 0.008055
59 0.681327

Coefficients
Standard Error t Stat
Intercept
-0.0044 0.012718 -0.34611
MKTRF
1.77791 0.539264 3.296918
SMB
0.98293 0.642601 1.529611
HML
0.826874 0.716494 1.154055
UMD
0.383464 0.395761 0.968928

P-value Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
0.730582 -0.02989 0.021086 -0.02989 0.021086
0.001716
0.6972 2.85862
0.6972 2.85862
0.131845 -0.30487 2.270732 -0.30487 2.270732
0.253468 -0.60901 2.26276 -0.60901 2.26276
0.336823 -0.40966 1.176586 -0.40966 1.176586

Your Student ID
1153911

DATE
MKTRF
SMB
HML
UMD
RF
20030131
-2.44%
1.37%
-0.84%
1.53%
0.10%
20030228
-1.63%
-0.35%
-1.54%
1.29%
0.09%
20030331
0.93%
0.88%
-1.71%
1.50%
0.10%
20030430
8.18%
1.21%
-0.08%
-9.48%
0.10%
20030530
6.26%
4.71%
0.27%
-10.79%
0.09%
20030630
1.53%
1.47%
0.64%
-1.06%
0.10%
20030731
2.24%
5.64%
-2.11%
-0.35%
0.07%
20030829
2.42%
2.64%
1.78%
-0.55%
0.07%
20030930
-0.99%
0.56%
0.99%
-0.07%
0.08%
20031031
5.96%
2.91%
1.75%
3.70%
0.07%
20031128
1.59%
2.22%
1.39%
1.63%
0.07%
20031231
4.47%
-2.87%
2.76%
-5.67%
0.08%
20040130
2.24%
2.60%
1.66%
2.58%
0.07%
20040227
1.49%
-1.20%
0.37%
-1.14%
0.06%
20040331
-1.16%
1.85%
-0.01%
0.20%
0.09%
20040430
-2.50%
-2.53%
-1.69%
-5.33%
0.08%
20040528
1.35%
-0.12%
-0.31%
1.64%
0.06%
20040630
2.08%
2.25%
1.72%
2.08%
0.08%
20040730
-3.87%
-3.82%
4.42%
-2.32%
0.10%
20040831
0.16%
-1.56%
1.13%
-1.54%
0.11%
20040930
1.95%
2.82%
0.40%
5.28%
0.11%
20041029
1.67%
0.49%
-0.95%
-1.54%
0.11%
20041130
4.67%
4.11%
1.96%
3.24%
0.15%
20041231
3.36%
0.18%
-0.35%
-2.82%
0.16%
20050131
-2.82%
-1.67%
2.52%
3.12%
0.16%
20050228
2.11%
-0.76%
2.85%
3.19%
0.16%
20050331
-1.90%
-1.37%
1.71%
0.93%
0.21%
20050429
-2.73%
-3.95%
-0.49%
-0.84%
0.21%
20050531
3.55%
3.01%
-1.16%
0.46%
0.24%
20050630
0.92%
2.58%
2.84%
2.10%
0.23%
20050729
4.09%
2.77%
-0.47%
0.08%
0.24%
20050831
-0.89%
-0.88%
1.44%
2.24%
0.30%
20050930
0.77%
-0.65%
1.23%
3.51%
0.29%
20051031
-2.35%
-1.05%
-0.74%
-1.37%
0.27%
20051130
3.73%
0.99%
-1.75%
0.39%
0.31%
20051230
0.03%
-0.47%
0.51%
0.77%
0.32%
20060131
3.66%
5.33%
1.18%
2.76%
0.35%
20060228
-0.50%
-0.31%
-0.76%
-1.81%
0.34%
20060331
1.54%
3.51%
0.04%
1.22%
0.37%
20060428
0.94%
-1.22%
3.07%
0.65%
0.36%
20060531
-3.53%
-3.00%
2.75%
-3.66%
0.43%
20060630
-0.44%
-0.47%
1.51%
1.52%
0.40%
20060731
-0.59%
-3.90%
3.25%
-2.24%
0.40%
20060831
2.09%
0.80%
-1.66%
-3.48%
0.42%
20060929
1.54%
-1.21%
-0.49%
-0.98%
0.41%
20061031
3.30%
1.68%
0.49%
-0.18%
0.41%

20061130
20061229
20070131
20070228
20070330
20070430
20070531
20070629
20070731
20070831
20070928
20071031
20071130
20071231

1.95%
0.68%
1.50%
-1.78%
0.86%
3.55%
3.48%
-1.88%
-3.58%
0.74%
3.77%
2.26%
-5.27%
-0.70%

0.70%
-0.93%
0.02%
1.38%
-0.20%
-2.06%
-0.05%
0.69%
-2.74%
-0.09%
-2.47%
0.07%
-2.72%
0.06%

0.39%
2.56%
0.00%
0.32%
0.31%
-1.08%
-0.23%
-1.07%
-3.01%
-2.42%
-2.10%
-1.97%
-0.88%
-0.02%

-1.00%
0.81%
0.22%
-1.32%
2.48%
-0.14%
-0.33%
0.40%
2.80%
0.14%
4.64%
4.86%
0.93%
6.48%

0.42%
0.40%
0.44%
0.38%
0.43%
0.44%
0.41%
0.40%
0.40%
0.42%
0.32%
0.32%
0.34%
0.27%

20080131
20080229
20080331
20080430
20080530
20080630
20080731
20080829
20080930
20081031
20081128
20081231

-6.44%
-2.33%
-1.22%
4.94%
2.21%
-8.03%
-1.46%
0.98%
-9.96%
-18.55%
-8.54%
2.06%

-0.76%
-0.67%
0.87%
-1.60%
2.80%
0.91%
3.89%
3.66%
-0.20%
-2.05%
-3.46%
4.04%

3.13%
0.04%
0.26%
0.08%
-0.30%
-0.93%
3.57%
1.65%
4.37%
-3.14%
-5.09%
-1.20%

-7.89%
6.23%
4.12%
-0.38%
3.19%
12.45%
-5.11%
-3.82%
0.36%
7.91%
7.19%
-5.04%

0.21%
0.13%
0.17%
0.17%
0.17%
0.17%
0.15%
0.12%
0.15%
0.08%
0.02%
0.09%

WALGREEN CO (WAG)
-0.6509%
-2.8362%
4.7619%
4.6811%
-0.1053%
-2.2410%
-0.5980%
9.0011%
-5.9257%
13.6423%
5.8390%
-1.1682%
-5.0302%
3.3376%
-7.5995%
4.6434%
1.6622%
3.4276%
0.5247%
0.2816%
-1.7010%
0.1675%
6.5269%
0.4976%
11.0503%
0.6395%
3.7123%
-3.0617%
5.4169%
1.4336%
4.0661%
-3.0610%
-6.2163%
4.5570%
0.6934%
-3.1086%
-2.2142%
3.8008%
-3.8564%
-2.7823%
-3.0169%
10.4434%
4.3265%
5.8946%
-10.2507%
-1.5995%

TIVO INC (TIVO)

-0.7678%
8.3172%
-8.9286%
16.4706%
51.5152%
34.3333%
-11.0835%
1.3953%
-32.0183%
8.7719%
3.2258%
-11.0577%
45.2703%
-0.6512%
-16.7603%
-21.1474%
8.5592%
-6.8331%
-20.3103%
-23.8938%
53.9535%
1.5861%
-29.9628%
24.6284%
-31.6865%
0.0000%
28.9277%
8.8975%
19.8934%
-1.0370%
-6.4371%
-17.6000%
6.4078%
-11.6788%
11.1570%
-4.8327%
7.6172%
0.7260%
30.2703%
14.7994%
-23.7349%
12.9542%
-5.8741%
22.5854%
-8.0000%
-15.8103%

-7.1257%
13.3366%
-1.2857%
-1.1534%
2.6622%
-4.3365%
2.9784%
-3.5232%
1.4699%
2.2295%
4.8147%
-16.0669%
-7.4779%
4.0722%

-10.9546%
-10.0176%
4.4922%
9.7196%
8.1772%
0.9449%
-2.4961%
-7.3600%
-5.0086%
2.3636%
12.7886%
12.2835%
5.0491%
11.3485%

-7.9832%
4.4663%
4.3276%
-8.5062%
3.6298%
-9.7446%
5.6290%
6.4138%
-15.0151%
-17.7649%
-2.3861%
-0.2829%

5.1559%
-1.0262%
0.9217%
-6.0502%
2.1871%
-26.6350%
24.4733%
10.1563%
-13.4752%
-6.2842%
-26.8222%
42.6295%

SPSS INC (SPSS)

-23.3738%
1.6791%
3.8532%
9.1873%
25.5664%
6.8943%
8.6197%
5.7714%
-11.4900%
8.5359%
5.6800%
-7.5969%
18.0090%
-3.0806%
-10.0245%
-22.7174%
17.0886%
7.9279%
-17.6405%
-6.7568%
-3.4058%
1.3503%
18.3568%
-2.1889%
1.9821%
21.6301%
-10.3608%
-7.4756%
8.6389%
9.8970%
2.2384%
10.9980%
10.0917%
-5.0000%
26.6667%
7.0983%
4.2354%
1.2407%
-3.0024%
10.1074%
6.1388%
-13.1351%
-15.8992%
-6.1413%
-1.7343%
10.9908%

-0.75%
-2.93%
4.66%
4.58%
-0.20%
-2.34%
-0.67%
8.93%
-6.01%
13.57%
5.77%
-1.25%
-5.10%
3.28%
-7.69%
4.56%
1.60%
3.35%
0.42%
0.17%
-1.81%
0.06%
6.38%
0.34%
10.89%
0.48%
3.50%
-3.27%
5.18%
1.20%
3.83%
-3.36%
-6.51%
4.29%
0.38%
-3.43%
-2.56%
3.46%
-4.23%
-3.14%
-3.45%
10.04%
3.93%
5.47%
-10.66%
-2.01%

-0.87%
8.23%
-9.03%
16.37%
51.43%
34.23%
-11.15%
1.33%
-32.10%
8.70%
3.16%
-11.14%
45.20%
-0.71%
-16.85%
-21.23%
8.50%
-6.91%
-20.41%
-24.00%
53.84%
1.48%
-30.11%
24.47%
-31.85%
-0.16%
28.72%
8.69%
19.65%
-1.27%
-6.68%
-17.90%
6.12%
-11.95%
10.85%
-5.15%
7.27%
0.39%
29.90%
14.44%
-24.16%
12.55%
-6.27%
22.17%
-8.41%
-16.22%

-23.47%
1.59%
3.75%
9.09%
25.48%
6.79%
8.55%
5.70%
-11.57%
8.47%
5.61%
-7.68%
17.94%
-3.14%
-10.11%
-22.80%
17.03%
7.85%
-17.74%
-6.87%
-3.52%
1.24%
18.21%
-2.35%
1.82%
21.47%
-10.57%
-7.69%
8.40%
9.67%
2.00%
10.70%
9.80%
-5.27%
26.36%
6.78%
3.89%
0.90%
-3.37%
9.75%
5.71%
-13.54%
-16.30%
-6.56%
-2.14%
10.58%

1.9516%
6.5934%
3.1593%
11.4442%
4.4258%
1.5513%
20.0491%
0.2954%
-7.0231%
-0.7066%
0.9571%
-7.6325%
-4.8947%
-0.6364%

-7.9644%
15.0681%
1.9721%
8.9221%
-6.7945%
-7.6200%
-9.1284%
-4.4478%
-7.0298%
-20.4360%
4.6233%
10.3110%

-7.55%
12.94%
-1.73%
-1.53%
2.23%
-4.78%
2.57%
-3.92%
1.07%
1.81%
4.49%
-16.39%
-7.82%
3.80%

-11.37%
-10.42%
4.05%
9.34%
7.75%
0.50%
-2.91%
-7.76%
-5.41%
1.94%
12.47%
11.96%
4.71%
11.08%

1.53%
6.19%
2.72%
11.06%
4.00%
1.11%
19.64%
-0.10%
-7.42%
-1.13%
0.64%
-7.95%
-5.23%
-0.91%

DATE
MKTRF
SMB
HML
UMD
RF
20030131
-2.44%
1.37%
-0.84%
1.53%
0.10%
20030228
-1.63%
-0.35%
-1.54%
1.29%
0.09%
20030331
0.93%
0.88%
-1.71%
1.50%
0.10%
20030430
8.18%
1.21%
-0.08%
-9.48%
0.10%
20030530
6.26%
4.71%
0.27%
-10.79%
0.09%
20030630
1.53%
1.47%
0.64%
-1.06%
0.10%
20030731
2.24%
5.64%
-2.11%
-0.35%
0.07%
20030829
2.42%
2.64%
1.78%
-0.55%
0.07%
20030930
-0.99%
0.56%
0.99%
-0.07%
0.08%
20031031
5.96%
2.91%
1.75%
3.70%
0.07%
20031128
1.59%
2.22%
1.39%
1.63%
0.07%
20031231
4.47%
-2.87%
2.76%
-5.67%
0.08%
20040130
2.24%
2.60%
1.66%
2.58%
0.07%
20040227
1.49%
-1.20%
0.37%
-1.14%
0.06%
20040331
-1.16%
1.85%
-0.01%
0.20%
0.09%
20040430
-2.50%
-2.53%
-1.69%
-5.33%
0.08%
20040528
1.35%
-0.12%
-0.31%
1.64%
0.06%
20040630
2.08%
2.25%
1.72%
2.08%
0.08%
20040730
-3.87%
-3.82%
4.42%
-2.32%
0.10%
20040831
0.16%
-1.56%
1.13%
-1.54%
0.11%
20040930
1.95%
2.82%
0.40%
5.28%
0.11%
20041029
1.67%
0.49%
-0.95%
-1.54%
0.11%
20041130
4.67%
4.11%
1.96%
3.24%
0.15%
20041231
3.36%
0.18%
-0.35%
-2.82%
0.16%
20050131
-2.82%
-1.67%
2.52%
3.12%
0.16%
20050228
2.11%
-0.76%
2.85%
3.19%
0.16%
20050331
-1.90%
-1.37%
1.71%
0.93%
0.21%
20050429
-2.73%
-3.95%
-0.49%
-0.84%
0.21%
20050531
3.55%
3.01%
-1.16%
0.46%
0.24%
20050630
0.92%
2.58%
2.84%
2.10%
0.23%
20050729
4.09%
2.77%
-0.47%
0.08%
0.24%
20050831
-0.89%
-0.88%
1.44%
2.24%
0.30%
20050930
0.77%
-0.65%
1.23%
3.51%
0.29%
20051031
-2.35%
-1.05%
-0.74%
-1.37%
0.27%
20051130
3.73%
0.99%
-1.75%
0.39%
0.31%
20051230
0.03%
-0.47%
0.51%
0.77%
0.32%
20060131
3.66%
5.33%
1.18%
2.76%
0.35%
20060228
-0.50%
-0.31%
-0.76%
-1.81%
0.34%
20060331
1.54%
3.51%
0.04%
1.22%
0.37%
20060428
0.94%
-1.22%
3.07%
0.65%
0.36%
20060531
-3.53%
-3.00%
2.75%
-3.66%
0.43%

20060630
20060731
20060831
20060929
20061031
20061130
20061229
20070131
20070228
20070330
20070430
20070531
20070629
20070731
20070831
20070928
20071031
20071130
20071231

20080131
20080229
20080331
20080430
20080530
20080630
20080731
20080829
20080930
20081031
20081128
20081231

-0.44%
-0.59%
2.09%
1.54%
3.30%
1.95%
0.68%
1.50%
-1.78%
0.86%
3.55%
3.48%
-1.88%
-3.58%
0.74%
3.77%
2.26%
-5.27%
-0.70%

-0.47%
-3.90%
0.80%
-1.21%
1.68%
0.70%
-0.93%
0.02%
1.38%
-0.20%
-2.06%
-0.05%
0.69%
-2.74%
-0.09%
-2.47%
0.07%
-2.72%
0.06%

1.51%
3.25%
-1.66%
-0.49%
0.49%
0.39%
2.56%
0.00%
0.32%
0.31%
-1.08%
-0.23%
-1.07%
-3.01%
-2.42%
-2.10%
-1.97%
-0.88%
-0.02%

1.52%
-2.24%
-3.48%
-0.98%
-0.18%
-1.00%
0.81%
0.22%
-1.32%
2.48%
-0.14%
-0.33%
0.40%
2.80%
0.14%
4.64%
4.86%
0.93%
6.48%

0.40%
0.40%
0.42%
0.41%
0.41%
0.42%
0.40%
0.44%
0.38%
0.43%
0.44%
0.41%
0.40%
0.40%
0.42%
0.32%
0.32%
0.34%
0.27%

-3.86%

0.62%

0.20%

1.60%

0.14%

-6.44%
-2.33%
-1.22%
4.94%
2.21%
-8.03%
-1.46%
0.98%
-9.96%
-18.55%
-8.54%
2.06%

-0.76%
-0.67%
0.87%
-1.60%
2.80%
0.91%
3.89%
3.66%
-0.20%
-2.05%
-3.46%
4.04%

3.13%
0.04%
0.26%
0.08%
-0.30%
-0.93%
3.57%
1.65%
4.37%
-3.14%
-5.09%
-1.20%

-7.89%
6.23%
4.12%
-0.38%
3.19%
12.45%
-5.11%
-3.82%
0.36%
7.91%
7.19%
-5.04%

0.21%
0.13%
0.17%
0.17%
0.17%
0.17%
0.15%
0.12%
0.15%
0.08%
0.02%
0.09%

EASTMAN KODAK CO
(EK)
-13.5274%
-2.3102%
0.0000%
1.0473%
5.4497%
-10.7376%
1.0238%
0.9410%
-24.9193%
17.8606%
-0.2865%
5.3777%
10.6739%
0.4576%
-8.3041%
-1.4520%
2.4816%
3.0558%
-1.8162%
11.6648%
8.9250%
-5.2452%
8.0251%
-1.4063%
2.6047%
2.7199%
-4.2365%
-23.1951%
6.1200%
2.1689%
-0.4097%
-8.8631%
-0.1641%
-8.9601%
9.4521%
-2.3780%
7.2650%
11.7530%
1.3904%
-5.2039%
-9.6439%

EASTMAN KODAK CO
(EK) EXCESS RETURN
-13.6274%
-2.4002%
-0.1000%
0.9473%
5.3597%
-10.8376%
0.9538%
0.8710%
-24.9993%
17.7906%
-0.3565%
5.2977%
10.6039%
0.3976%
-8.3941%
-1.5320%
2.4216%
2.9758%
-1.9162%
11.5548%
8.8150%
-5.3552%
7.8751%
-1.5663%
2.4447%
2.5599%
-4.4465%
-23.4051%
5.8800%
1.9389%
-0.6497%
-9.1631%
-0.4541%
-9.2301%
9.1421%
-2.6980%
6.9150%
11.4130%
1.0204%
-5.5639%
-10.0739%

This is an example of Four-factor analysis us

The excess return on Eastman Kodak is calc
Next, this excess return is regressed on the
Data Analysis with inputs as shown below.

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.620447
R Square 0.384955
Adjusted R Square
0.340224
Standard Error
0.067615
Observations
60
ANOVA
df
Regression
Residual
Total

4
55
59

Coefficients
Intercept
-0.0249
MKTRF
1.913099

-1.3687%
-6.4340%
-4.4045%
5.3126%
10.0446%
6.6393%
-0.8455%
0.2326%
-7.6953%
-5.4881%
10.4167%
2.8101%
9.7397%
-9.2706%
5.6238%
0.3375%
8.0344%
-18.0740%
-6.8569%

-1.7687%
-6.8340%
-4.8245%
4.9026%
9.6346%
6.2193%
-1.2455%
-0.2074%
-8.0753%
-5.9181%
9.9767%
2.4001%
9.3397%
-9.6706%
5.2038%
0.0175%
7.7144%
-18.4140%
-7.1269%

0.039372
0.201359
0.464549

The market beta is

Since market beta is greater than 1, this sto

The SMB beta is

Since this beta is positive, the stock acts mo
stock but only slightly because beta is very

The HML beta is

Since this beta is positive, the stock acts like

The UMD beta is

Since this beta is positive, the stock return i
stock.

To predict average monthly return for 2008

factors, the riskfree rate, and the stock retu
to 76.

-8.2798%
-8.9163%
-14.7590%
4.0636%
1.2450%
-12.9681%
-5.8094%
1.4553%
10.5874%
-5.0031%
-38.8166%
-17.3581%
-13.0779%

SMB
HML
UMD

-9.1263%
-14.8890%
3.8936%
1.0750%
-13.1381%
-5.9794%
1.3053%
10.4674%
-5.1531%
-38.8966%
-17.3781%
-13.1679%

Now calculate the predicted average month

the problem as:
Predicted Return =
which is obtained from the following calcula
=
-0.0249
+
1.913099
+
0.039372
+
0.201359
+
0.464549
+

Finally, the difference between predicted re

between -8.9325%

example of Four-factor analysis using Eastman Kodak stock returns.

ss return on Eastman Kodak is calculated in column L as column I minus column G.
excess return is regressed on the four-factors in columns C to F using
alysis with inputs as shown below. Regression output follows.

SS
MS
F
Significance F
0.15738293 0.039346 8.606079 1.82E-05
0.25145194 0.004572
0.40883486
Standard Error t Stat
P-value Lower 95%Upper 95%Lower 95.0%
Upper 95.0%
0.00958164 -2.5983 0.012001 -0.0441 -0.00569 -0.0441 -0.00569
0.40626981 4.708937 1.73E-05 1.098916 2.727282 1.098916 2.727282

0.48412178 0.081327 0.935477 -0.93083 1.009574 -0.93083 1.009574

0.53979087 0.373032 0.710559 -0.88041 1.283124 -0.88041 1.283124
0.29815734 1.558068 0.124953 -0.13297 1.06207 -0.13297 1.06207

1.91309886
rket beta is greater than 1, this stock has more market risk than an average stock.

0.03937241
beta is positive, the stock acts more like a small stock compared to an average
t only slightly because beta is very close to 0.
0.20135916
beta is positive, the stock acts like a value stock compared to an average stock.
0.46454932
beta is positive, the stock return is more sensitive to momentum than an average

t average monthly return for 2008, calculate the average monthly values of the four
he riskfree rate, and the stock return. The values in row 63 are averages of rows 65

ulate the predicted average monthly return using the equation mentioned in

-8.9325%
obtained from the following calculation:
*
*
*
*

-3.86%
0.62%
0.20%
1.60%
0.14%

he difference between predicted return and the actual return is the difference
and
-8.2798% which is 0.6528%

Your Student ID
1153911

DATE
MKTRF
SMB
HML
UMD
RF
20030131
-2.44%
1.37%
-0.84%
1.53%
0.10%
20030228
-1.63%
-0.35%
-1.54%
1.29%
0.09%
20030331
0.93%
0.88%
-1.71%
1.50%
0.10%
20030430
8.18%
1.21%
-0.08%
-9.48%
0.10%
20030530
6.26%
4.71%
0.27%
-10.79%
0.09%
20030630
1.53%
1.47%
0.64%
-1.06%
0.10%
20030731
2.24%
5.64%
-2.11%
-0.35%
0.07%
20030829
2.42%
2.64%
1.78%
-0.55%
0.07%
20030930
-0.99%
0.56%
0.99%
-0.07%
0.08%
20031031
5.96%
2.91%
1.75%
3.70%
0.07%
20031128
1.59%
2.22%
1.39%
1.63%
0.07%
20031231
4.47%
-2.87%
2.76%
-5.67%
0.08%
20040130
2.24%
2.60%
1.66%
2.58%
0.07%
20040227
1.49%
-1.20%
0.37%
-1.14%
0.06%
20040331
-1.16%
1.85%
-0.01%
0.20%
0.09%
20040430
-2.50%
-2.53%
-1.69%
-5.33%
0.08%
20040528
1.35%
-0.12%
-0.31%
1.64%
0.06%
20040630
2.08%
2.25%
1.72%
2.08%
0.08%
20040730
-3.87%
-3.82%
4.42%
-2.32%
0.10%
20040831
0.16%
-1.56%
1.13%
-1.54%
0.11%
20040930
1.95%
2.82%
0.40%
5.28%
0.11%
20041029
1.67%
0.49%
-0.95%
-1.54%
0.11%
20041130
4.67%
4.11%
1.96%
3.24%
0.15%
20041231
3.36%
0.18%
-0.35%
-2.82%
0.16%
20050131
-2.82%
-1.67%
2.52%
3.12%
0.16%
20050228
2.11%
-0.76%
2.85%
3.19%
0.16%
20050331
-1.90%
-1.37%
1.71%
0.93%
0.21%
20050429
-2.73%
-3.95%
-0.49%
-0.84%
0.21%
20050531
3.55%
3.01%
-1.16%
0.46%
0.24%
20050630
0.92%
2.58%
2.84%
2.10%
0.23%
20050729
4.09%
2.77%
-0.47%
0.08%
0.24%
20050831
-0.89%
-0.88%
1.44%
2.24%
0.30%
20050930
0.77%
-0.65%
1.23%
3.51%
0.29%
20051031
-2.35%
-1.05%
-0.74%
-1.37%
0.27%
20051130
3.73%
0.99%
-1.75%
0.39%
0.31%
20051230
0.03%
-0.47%
0.51%
0.77%
0.32%
20060131
3.66%
5.33%
1.18%
2.76%
0.35%
20060228
-0.50%
-0.31%
-0.76%
-1.81%
0.34%
20060331
1.54%
3.51%
0.04%
1.22%
0.37%
20060428
0.94%
-1.22%
3.07%
0.65%
0.36%
20060531
-3.53%
-3.00%
2.75%
-3.66%
0.43%
20060630
-0.44%
-0.47%
1.51%
1.52%
0.40%
20060731
-0.59%
-3.90%
3.25%
-2.24%
0.40%
20060831
2.09%
0.80%
-1.66%
-3.48%
0.42%
20060929
1.54%
-1.21%
-0.49%
-0.98%
0.41%

20061031
20061130
20061229
20070131
20070228
20070330
20070430
20070531
20070629
20070731
20070831
20070928
20071031
20071130
20071231

20080131
20080229
20080331
20080430
20080530
20080630
20080731
20080829
20080930
20081031
20081128
20081231

3.30%
1.95%
0.68%
1.50%
-1.78%
0.86%
3.55%
3.48%
-1.88%
-3.58%
0.74%
3.77%
2.26%
-5.27%
-0.70%

1.68%
0.70%
-0.93%
0.02%
1.38%
-0.20%
-2.06%
-0.05%
0.69%
-2.74%
-0.09%
-2.47%
0.07%
-2.72%
0.06%

0.49%
0.39%
2.56%
0.00%
0.32%
0.31%
-1.08%
-0.23%
-1.07%
-3.01%
-2.42%
-2.10%
-1.97%
-0.88%
-0.02%

-0.18%
-1.00%
0.81%
0.22%
-1.32%
2.48%
-0.14%
-0.33%
0.40%
2.80%
0.14%
4.64%
4.86%
0.93%
6.48%

0.41%
0.42%
0.40%
0.44%
0.38%
0.43%
0.44%
0.41%
0.40%
0.40%
0.42%
0.32%
0.32%
0.34%
0.27%

-3.86%

0.62%

0.20%

1.60%

0.14%

-6.44%
-2.33%
-1.22%
4.94%
2.21%
-8.03%
-1.46%
0.98%
-9.96%
-18.55%
-8.54%
2.06%

-0.76%
-0.67%
0.87%
-1.60%
2.80%
0.91%
3.89%
3.66%
-0.20%
-2.05%
-3.46%
4.04%

3.13%
0.04%
0.26%
0.08%
-0.30%
-0.93%
3.57%
1.65%
4.37%
-3.14%
-5.09%
-1.20%

-7.89%
6.23%
4.12%
-0.38%
3.19%
12.45%
-5.11%
-3.82%
0.36%
7.91%
7.19%
-5.04%

0.21%
0.13%
0.17%
0.17%
0.17%
0.17%
0.15%
0.12%
0.15%
0.08%
0.02%
0.09%

WALGREEN CO (WAG)
-0.6509%
-2.8362%
4.7619%
4.6811%
-0.1053%
-2.2410%
-0.5980%
9.0011%
-5.9257%
13.6423%
5.8390%
-1.1682%
-5.0302%
3.3376%
-7.5995%
4.6434%
1.6622%
3.4276%
0.5247%
0.2816%
-1.7010%
0.1675%
6.5269%
0.4976%
11.0503%
0.6395%
3.7123%
-3.0617%
5.4169%
1.4336%
4.0661%
-3.0610%
-6.2163%
4.5570%
0.6934%
-3.1086%
-2.2142%
3.8008%
-3.8564%
-2.7823%
-3.0169%
10.4434%
4.3265%
5.8946%
-10.2507%

TIVO INC (TIVO)

-0.7678%
8.3172%
-8.9286%
16.4706%
51.5152%
34.3333%
-11.0835%
1.3953%
-32.0183%
8.7719%
3.2258%
-11.0577%
45.2703%
-0.6512%
-16.7603%
-21.1474%
8.5592%
-6.8331%
-20.3103%
-23.8938%
53.9535%
1.5861%
-29.9628%
24.6284%
-31.6865%
0.0000%
28.9277%
8.8975%
19.8934%
-1.0370%
-6.4371%
-17.6000%
6.4078%
-11.6788%
11.1570%
-4.8327%
7.6172%
0.7260%
30.2703%
14.7994%
-23.7349%
12.9542%
-5.8741%
22.5854%
-8.0000%

-1.5995%
-7.1257%
13.3366%
-1.2857%
-1.1534%
2.6622%
-4.3365%
2.9784%
-3.5232%
1.4699%
2.2295%
4.8147%
-16.0669%
-7.4779%
4.0722%

-15.8103%
-10.9546%
-10.0176%
4.4922%
9.7196%
8.1772%
0.9449%
-2.4961%
-7.3600%
-5.0086%
2.3636%
12.7886%
12.2835%
5.0491%
11.3485%

-3.1014%

0.4359%

-7.9832%
4.4663%
4.3276%
-8.5062%
3.6298%
-9.7446%
5.6290%
6.4138%
-15.0151%
-17.7649%
-2.3861%
-0.2829%

5.1559%
-1.0262%
0.9217%
-6.0502%
2.1871%
-26.6350%
24.4733%
10.1563%
-13.4752%
-6.2842%
-26.8222%
42.6295%

SPSS INC (SPSS)

-23.3738%
1.6791%
3.8532%
9.1873%
25.5664%
6.8943%
8.6197%
5.7714%
-11.4900%
8.5359%
5.6800%
-7.5969%
18.0090%
-3.0806%
-10.0245%
-22.7174%
17.0886%
7.9279%
-17.6405%
-6.7568%
-3.4058%
1.3503%
18.3568%
-2.1889%
1.9821%
21.6301%
-10.3608%
-7.4756%
8.6389%
9.8970%
2.2384%
10.9980%
10.0917%
-5.0000%
26.6667%
7.0983%
4.2354%
1.2407%
-3.0024%
10.1074%
6.1388%
-13.1351%
-15.8992%
-6.1413%
-1.7343%

-0.75%
-2.93%
4.66%
4.58%
-0.20%
-2.34%
-0.67%
8.93%
-6.01%
13.57%
5.77%
-1.25%
-5.10%
3.28%
-7.69%
4.56%
1.60%
3.35%
0.42%
0.17%
-1.81%
0.06%
6.38%
0.34%
10.89%
0.48%
3.50%
-3.27%
5.18%
1.20%
3.83%
-3.36%
-6.51%
4.29%
0.38%
-3.43%
-2.56%
3.46%
-4.23%
-3.14%
-3.45%
10.04%
3.93%
5.47%
-10.66%

SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations

0.253890413
0.064460342
-0.003578906
0.055280151
60

ANOVA
df
Regression
Residual
Total

Intercept
MKTRF
SMB
HML
UMD

4
55
59
Coefficients
-0.001565559
0.346118667
-0.01862182
0.667663422
0.019773085

10.9908%
1.9516%
6.5934%
3.1593%
11.4442%
4.4258%
1.5513%
20.0491%
0.2954%
-7.0231%
-0.7066%
0.9571%
-7.6325%
-4.8947%
-0.6364%

-2.01%
-7.55%
12.94%
-1.73%
-1.53%
2.23%
-4.78%
2.57%
-3.92%
1.07%
1.81%
4.49%
-16.39%
-7.82%
3.80%

-1.8770%
-7.9644%
15.0681%
1.9721%
8.9221%
-6.7945%
-7.6200%
-9.1284%
-4.4478%
-7.0298%
-20.4360%
4.6233%
10.3110%

WAG
Predicted return
Difference

-1.20144%
-1.89994%

TIVO
Predicted return
Difference

-5.16008%
5.59598%

SPSS
Predicted return
Difference

-5.77946%
3.90244%

SS
0.01158061
0.16807423
0.17965485
Standard Error
0.00783363
0.33215258
0.39580174
0.44131492
0.24376344

MS
F
Significance F
0.00289515 0.94739939 0.44371804
0.0030559

t Stat
-0.19985111
1.04204722
-0.04704835
1.51289564
0.08111588

P-value
0.84233412
0.30194872
0.96264511
0.1360316
0.93564426

Lower 95%
-0.0172645
-0.31952996
-0.81182623
-0.21675144
-0.46873977

Upper 95%
0.01413338
1.0117673
0.77458259
1.55207828
0.50828594

Lower 95.0%
-0.0172645
-0.31952996
-0.81182623
-0.21675144
-0.46873977

Upper 95.0%
0.01413338
1.0117673
0.77458259
1.55207828
0.50828594

SUMMARY OUTPUT
Regression Statistics
Multiple R
0.3988992
R Square
0.15912057
Adjusted R Square0.0979657
Standard Error 0.17626122
Observations
60
ANOVA
df
Regression
Residual
Total

Intercept
MKTRF
SMB
HML
UMD

SS
MS
4 0.32334699 0.08083675
55 1.70874095 0.03106802
59 2.03208795

Coefficients Standard Error

0.00631267 0.02497759
1.72117246 1.05907123
1.33352558 1.26201711
-1.61552234 1.40713627
0.13882223 0.77724175

t Stat
0.25273327
1.62517158
1.05666204
-1.14809232
0.17860882

F
Significance F
2.60192815 0.04577432

P-value
0.80141654
0.1098434
0.29528515
0.25589962
0.85890117

Lower 95%
-0.04374354
-0.4012537
-1.19561322
-4.43548643
-1.41880504

SUMMARY OUTPUT
Regression Statistics
Multiple R
0.59140495
R Square
0.34975982
Adjusted R Square
0.30246962
Standard Error 0.08974975
Observations
60
ANOVA
df
Regression
Residual
Total

Intercept
MKTRF
SMB
HML
UMD

SS
MS
4 0.23830068 0.05957517
55 0.44302596 0.00805502
59 0.68132664

Coefficients Standard Error

-0.00440189 0.01271824
1.77791001 0.53926427
0.98293003 0.64260148
0.82687398 0.71649412
0.38346361 0.39576064

t Stat
-0.34610842
3.29691789
1.5296106
1.15405549
0.96892811

F
Significance F
7.39603242
7.684E-05

P-value
0.73058176
0.00171636
0.13184473
0.25346757
0.33682278

Lower 95%
-0.02988981
0.69720028
-0.3048721
-0.60901233
-0.40965843

Upper 95%
0.05636888
3.84359862
3.86266437
1.20444175
1.6964495

Lower 95.0%
-0.04374354
-0.4012537
-1.19561322
-4.43548643
-1.41880504

Upper 95.0%
0.05636888
3.84359862
3.86266437
1.20444175
1.6964495

Upper 95%
0.02108603
2.85861975
2.27073216
2.26276028
1.17658564

Lower 95.0%
-0.02988981
0.69720028
-0.3048721
-0.60901233
-0.40965843

Upper 95.0%
0.02108603
2.85861975
2.27073216
2.26276028
1.17658564

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.591405
R Square
0.34976
Adjusted R Square
0.30247
Standard Error
0.08975
Observations
60
ANOVA
df
Regression
Residual
Total

SS
MS
F
Significance F
4 0.238301 0.059575 7.396032 7.68E-05
55 0.443026 0.008055
59 0.681327

Coefficients
Standard Error t Stat
Intercept
-0.0044 0.012718 -0.34611
MKTRF
1.77791 0.539264 3.296918
SMB
0.98293 0.642601 1.529611
HML
0.826874 0.716494 1.154055
UMD
0.383464 0.395761 0.968928

P-value Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
0.730582 -0.02989 0.021086 -0.02989 0.021086
0.001716
0.6972 2.85862
0.6972 2.85862
0.131845 -0.30487 2.270732 -0.30487 2.270732
0.253468 -0.60901 2.26276 -0.60901 2.26276
0.336823 -0.40966 1.176586 -0.40966 1.176586