Irvine Valley College Factor Frenzy Answer Sheet

Analysis Guidance

1. FF Factors and RF rate included in corresponding file (0.05 = 5%).
2. Pick your 5-10 stocks following the restrictions listed in the project description.
3. Use Yahoo! Finance to download ten years of monthly prices (use adjusted close price).
4. Calculate individual stock returns as the change in monthly prices from Yahoo! using the formula in the project description.
5. Calculate your monthly portfolio returns starting with equal weights in all stocks
6. Use the first five years (before investment begins) to find the optimal weights (long only) for your portfolio using the optimization method of your choice (use the 5 year average rf rate if you optimize with the Sharpe ratio).
7. Use these weights to calculate your portfolio returns on the last five years (time you are actually invested).
8. Regress your portfolio returns on the FF 3 Factors.
9. Regress your portfolio returns on the FF 5 Factors.
10. Run an F-Test between your two model specifications.
11. Answer the questions on the Project Answer sheet
12. Growth of $10,000