Exercise: Using StataMP 17 software a. Present the Capital Asset Prising Model. Estimate the CAPM model using the data for the asset you have chosen. (share from S&P 500) Report and discuss the results and whether you believe the estimate you have obtained is appropriate. b. Test the hypothesis that the asset is in equilibrium. Present the testing procedure, report and result of the test and discuss the decision you take. 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. c. 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. d. Compare the results for model under question (c) with those from the model under question (a). What is the preferred model and why? Discuss? e. How do you deal with the presence of an important event in the data (for example, a financial crisis)? Discuss. Use the data to describe your approach.
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