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  1. Answer ALL the questions
  2. A template answer sheet has been provided on the KEATS page,

you should complete the first page ‘cover sheet’ and then type

your answers below. Make sure you clearly indicate the questions

you are answering (e.g. Section A, Question 1).

  1. Use the Harvard referencing style.
  2. If you have a PAA cover sheet, you should include this in addition

to the template answer sheet.

  1. Paste any required diagrams and graphs for your answers directly

onto the answer sheet using software or uploaded photos.

  1. Save your work regularly, at least every 15 minutes.


  1. You should submit your work via the Turnitin submission link on

the module KEATS page.

  1. Ensure your document is submitted through Turnitin with the

title CANDIDATE ID – MODULE CODE- e.g. AD12345-7SSMM800.

  1. Once submitted please check you are satisfied with the uploaded

document via the submission link.

  1. If you experience technical difficulties and are unable to upload

your assessment by the deadline, please collate evidence of the

technical issue and submit a mitigating circumstances form

(MCF). Remember that the evidence must clearly show

timestamps and proof that you attempted to upload your

assessment before the deadline.


Login in on Keats.

Click at the following link and download the file dataset_coursework.dta,

Data has been collected from Yahoo Finance. They range from January 1990

to September 2021 with a daily frequency.

In Column 1, we report the “date”.

In Column 2, the variable “r_market”, is the return of the market portfolio.

In Column 3, the variable “rfr” is the daily return for the Treasury bills, the

risk-free asset.

In Column 4, “hml” is the average return of the stocks in the high market-to

book portfolio minus the return of the stocks in the low book-to-market


In Column 5, “smb” is the average return of stocks in a portfolio formed by

small market capitalization companies minus the average returns of stocks in

the portfolio formed by big market capitalisation companies (see Figure 1).

Data have been collected from the Kenneth French’s Data Library website and

the full description of the above variables is available at the following link.

From Column 6 onward, you will find the price for about 240 stocks listed in

the S&P500.


a.Present the Capital Asset Pricing Model (CAPM) and discuss how the theoretical model is made operational when going from the theory to the empirical practice.(10 marks)

b.Estimate the CAPM model using the data. Report and discuss the results and whether you believe the estimate you have obtained is appropriate.(10 marks)

c.Test the hypothesis that the asset is in equilibrium. Present the testing procedure, report the result of the test, and discuss the decision you take.(10 marks)

d.Assume you hold a portfolio. Would you buy the asset under examination if your aim is to make the portfolio you hold risk neutral? Discuss.(10 marks)

e.Present and discuss the Fama and French (1993) three factors model.

Estimate the Fama and French (1993) three factors model using the data and discuss the results.(20 marks)

f.Compare the results for model under question (e) with those from the model under question (b). What is the preferred model, and why? Discuss.(20 marks)

g.Discuss the relationship, if any, among the models you have estimated in point (b) and (e) with the index models.

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