Hey finance newschoolers, I am working on a study guide and need your help with a question in regards to the Fama-French three factor model. Here's the question:
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"Suppose that you believe that the Fama-French
three-factor model is a good model and you would like to use it to evaluate the
performance of a mutual fund. Suppose that you run a time-series regression
based on the most recent 60 monthly observations. The intercept estimate is
0.4% and the t-statistic is 3.6. The slope estimates for the market factor
(i.e., the difference between S&P 500 return and the T-bill return), the
SMB factor, and the HML factor are 0.8, 0.1, and 0.2, respectively. Their
associated t-statistics are 12.0, 0.4, and 0.8, respectively. What can you say
about the performance of the fund? Does the fund on average hold stocks with
high betas or low betas?"
Given this information, is the performance of the fund on average better than most? Given the intercept of above zero? Even though it is marginal .4 above zero percent is statistically significant than zero. Also, given the t-statistic and the SMB, HML and market factor numbers, is it clear this an "above average" returning fund?
Thanks for any help newschoolers!
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