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Mathematics, 10.08.2021 02:30 Babygirljay1540
Suppose we run a factor regression for a stock fund to see which factors explain its return and get the following output:
Int RM-RF SMB HML RMW CMA R^
2x3 factors
RM-R
Coef 0.82 0.25 0.03 -0.40 -0.91 0.24
t-statistic 494 4.44 0.38 4.84 -7.83
SMB
Coef 0.39 0.133 0.05 -0.48 -0.17 0.17
t-statistic 3.23 4.44 0.81 -8.43 -1.92
HML
Coef -0.04 0.01 0.02 0.23 1.04 0.51
t-statistic -0.47 0.38 0.81 5.36 23.03
RMW
Coef 0.43 -0.09 -0.22 0.20 -0.44 0.21
t-statistic 5.45 -4.84 -8.43 5.36 -7.84
CMA
Coef 0.28 -0.10 -0.04 0.45 -0.21 0.57
t-statistic 5.03 -7.83 -1.92 23.03 -7.84
Where RM-RF is the excess market return, SMB is the Size factor, HML is the Value factor, RMW is the Robustness factor and CMA is the Conservative Factor. Looking at the output of regression, which factor is almost redundant, and which factor explains the redundant factor most?
a. Robustness Factor (RMW) and Excess-Market return (RM-RF).
b. Value Factor (HML) and Conservative Factor (CMA).
c. Size Factor (SMB) and Value Factor (HML).
d. Conservative Factor (CMA) and Robustness Factor (RMW).
e. There is no redundant factor.
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