APM_8

Active portfolio management

Security Selection Methodologies, Timing &

Introduction to Factor Models

Advanced Portfolio Management

06/06/2024 1
Advanced Portfolio Management
ActivePortfolio
Active Portfolio
Risk
Risk//Return
Return Management
Management
Historic
Historicprofile,
profile, Performanceevaluation
Performance evaluation
expected returns,
expected returns, andattribution
and attribution
and
andrisk
riskanalysis
analysis

Duration
Duration Options
Options
Analyse
Analyse PC
PCparities,
parities,strategies
strategies
Impactofofrate
ratechanges
changes Greeks , D G hedging
Greeks , D G hedging
Impact
onthe
theprice
priceofofbonds
bonds Exotics
Exoticsand
andCPPI
CPPI
on
Top Down Currency

Duration

Corp, Gov, Conv

AA
Real
Equity Bonds Cash
Estate
Ind, retail, residential, office
Geography
Themes
Sectors

a ++ Bottom Up
Factors, Style
Security
Selection
3
 From Portfolio Management to Security Selection
Improvement of Er by active management : selection and timing

Eu ~ Er - AV* s²+ …
Market index s(e) = specific
risk
Eri = rf + ai + bi(Erm-rf) + ei
Fama & French  SMB, HML, WML,...

Jensen-a  FF 3 factor a Carhart 4 factor a4 ...

Single Factor Model ?

CAPM
a
Linear model to correct for market risk (only)

Portfolio Market Rp-Rf ~ a + b ( Rm-Rf ) + e

Return Return
Looks bad in practice
Looks bad in theory …

Correction of portfolio return for market risk

 p
E(rp )  rf  (E(rM )  rf )
M
Expected
The Capital
Return Market Line
Efficient Set
E(rj)
E(rm)

How do we price
rf an individual
security with Ri and si ?

sm sj s
6
8,0

CML
7,0
RRi

Ri Security i
6,0

M
5,0

4,0

b i sm
3,0

2,0
Required Rate of Return of i under CAPM:
Risk of M rescaled at the Risk Level of i

RRi = Rf + bism*(Rm-Rf)/sm
1,0

si
0,0
0,00 5,00 10,00 15,00 20,00 25,00 30,00
 Introducing (some of) the tools for performance
analysis



FF 3 factor
model
Sharpe Ratio


Carhart 4 factor
model
(out) Treynor Index
Performance ?

M² RAP
Treynor-Mazuy
Test for Timing Information
Ratio
06/06/2024 8
Single Factor Model

a Selectie Treynor-Mazuy
a a Timing
Test for Timing

Portfolio Market Rp-Rf ~ a + b ( Rm- Rf ) + g( R m- ²

Rf ) + w

Return Return Detection of timing?

add MR ²

Correction of return for market risk

Factor Models: Introduction

Multi Factor
Models

Fundamental
Macroeconomic Factors
Factors Statistical
Factors

APT 4 Factor Quality

“inspired” factor choices
 prone to regime shifts
 Proliferation of models
Identify ?

Finance approach

APT 4 Factor approach

Fundamental macro model 4+ Factor approach

Multifactor Statistische modellen

Statistische modellen
Factoren gericht op beleggingsstijl

4-factor –modellen die corrigeren voor risico-factoren

Markt, HmL, SmB, WmL  correcte alfa-berekening

AA SS
Single  Multi Factor Model
CAPM 4 factor model

a
a “Clean”
outperformance as
measure of skill

Market
Portfolio Market
Return Return HmL Attribution of
return to market
and style risks
SmB

WmL

Correction of return for market risk Correction of return for “all” risks
 4 Factor-approach to factor models

Timing?
What determines positive risk premia of these factors ?

Specific skills
Correction for risk- factors

Rp–Rf = a + b(Rm-Rf) + g1(HmL) + g2(SmB) +g3(WmL) + u

Select companies with high sensitivity

when the portfolio is deliberately exposed to
the risk a selected factor
 Fama & French
The Cross-Section of expected Stock Returns
The Journal of Finance 1992

Jun 6, 20 15
24
 Journal of Finance March 1996
 3-Factor Model

16
Fama and French (1993 ; 1996 ) suggest a 3 factor model to explain the
expected return on a portfolio

SG SV
LG LV
E(Ri)-Rf = bi[ E(RM)-Rf ]+siE(SmB)+hiE(HmL)

[E(RM)-Rf] is the expected premium on the excess return of a broad market portfolio,
E(SmB) is the expected premium on the difference between returns on a
portfolio of small stocks and the return on a portfolio of large stocks (SmB, small minus big),
E(HML) is the expected premium on the portfolio of high book-to-market
stocks and the return on a portfolio of low book-to-market stocks (HmL, high minus low);
and bi, si, and hi are the slopes in a time series regression of

Rit - Rft= ai + bi(RMt-Rft)+ si (SmBt) + hi (HmLt) + eit

17
 x 1,000 x 1,000

10.0 10.0
8.0 8.0
6.0 6.0

4.0 4.0
MSCI

USA 2.0 2.0

Growth / Value

1.0 1.0
0.8 0.8
0.6 0.6

0.4 0.4

0.2 0.2

0.1 0.1
1980 1985 1990 1995 2000 2005 2010 2015 2020
MSCI USA :G U$ - Net Return MSCI USA :V U$ - Net Return
Source: Refinitiv Datastream
 1000 1000
900 900
800 800
700 700
600 600

MSCI 500 500

USA 400 400

Growth / Value
300 300

200 200

100 100
90 90
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
MSCI USA :G U$ - Total Return Index MSCI USA :V U$ - Total Return Index
Source: Refinitiv Datastream
 500 500
450 450
400 400

SG SV 350 350

LG LV 300 300

250 250

LG
200 200

SG

150 150

100 SV 100

L V2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Rebase MSCI US SMALL CAP VALUE - Net Retur… Rebase MSCI US SMALL CAP GROWTH - Net Ret…
Rebase MSCI US LARGE CAP VALUE - Net Retur… Rebase MSCI US LARGE CAP GROWTH - Net Ret…
Rebase MSCI USA - Net Return to 100
Source: Refinitiv Datastream
 250 250

200 200

SG SV 150
LG 150

LG LV

100 100

SV

50 50
2018 2019 2020 2021 2022 2023
Rebase MSCI US SMALL CAP VALUE - Net Retur… Rebase MSCI US SMALL CAP GROWTH - Net Ret…
Rebase MSCI US LARGE CAP VALUE - Net Retur… Rebase MSCI US LARGE CAP GROWTH - Net Ret…
Rebase MSCI USA - Net Return to 100
Source: Refinitiv Datastream
 600 600

500 500

400 400

MSCI World 300 World Growth 300

World Value

Growth / Value
200 200
World Index

100 100
90 90
80 80

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
MSCI WORLD :V U$ - Net Return MSCI WORLD U$ - Net Return
MSCI WORLD :G U$ - Net Return
Source: Refinitiv Datastream
 300 300

Eurozone Growth
250 250
Eurozone Value

200 200

MSCI Eurozone

Growth / Value
150 150

100 100
MSCI EUROZONE

50 50
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
MSCI EMU VALUE - Net Return MSCI EMU - Net Return
MSCI EMU GROWTH - Net Return
Source: Refinitiv Datastream
 Applications in “Performance” analysis:
From Jensen to FF and Carhart-alfa

The intercept is interpreted as a risk

adjusted performance Measure
CAPM

R it  R ft  α i  β i (R mt - R ft )  e it

3  factormodel (FF)

R it  R ft  a i  b i (R mt - R ft )  s i SMB t  h i HML t  e it

4  factormodel (Carhart)

R it  R ft  a 'i  b'i (R mt - R ft )  s'i SMB t  h'i HML t  p i WML t  e it

Improving the model, should improve the quality of the intercept24

 Analyse performance  Evaluate performance

CAPM



FF 3 factor
model
Sharpe Ratio

Carhart 4 factor


model
(out) Treynor Index
Performance ?

M² RAP
Treynor-Mazuy
Test for Timing Information
Ratio
06/06/2024 25
 Performance evaluation
GIPS  The GIPS standards are integrity standards for
investment performance presentation to ensure fair representation
and full disclosure of investment performance

Compliance Manager selection process ?

Rules ?

Correct Evaluate Predict

Measure
Performance
For Risk Adjusted Out
Risk Performance Performance?

-Definition of Risk ?
Distinguish luck from skill ?
-How to correct Persistence ?
for Risk ?

Jun 6, 2024 26
Risk-adjusted
Performance Measures
• Everybody agrees on the
fact that, when
comparing returns, one
has to correct for the risk
incurred in the strategy.
• But there is strong
disagreement on how to
correct for risk, probably
resulting from the lack of
a clear-cut definition of
risk, itself.
• The theory behind risk-
adjusted performance
measures calls for before-the-
fact measurement
• What are the data-
gathering problems in
before-the-fact
measurement?
• In practice, we’re stuck
with after-the fact data
• Luck vs. skill:
problem of
statistical power
27
 Performance evaluation
Performance
evaluation
a based
(Risk Adjusted)
Performance
Measurement

ratio-based

28
 Performance evaluation
Performance Correction of excess return
evaluation for risk factors
a based
(Risk Adjusted)
R jt  R Ft   j  b1 j ( R Mt  R Ft )
Performance
Measurement
 b2 j SMB t  b3 j HML t  b4 j WML t  b5 j  (TED ) t  ...   t

ratio-based

Ratio Analysis
 Sharpe ratio
 Treynor Index
 M², Sortino Index
 Information ratio
…
Tools for
performance analysis
FF 3 factor
 ratio-based


model

Sharpe Ratio

Carhart
4 factor (out)
model Performance ? Treynor


Index

M² RAP
Information
Ratio
 Jensen’s
Performance Index

Rit  Rft   i  (Rmt  Rft )  i   it

Ri  Rf Slope = bi

a Rm  Rf

Jun 6, 2024 31
 Worldfund (y) against Worldindex
(x)
-10 Years Regression MSCI World NR in €
15 15
Monthly
Return
10
World 10
Fund

5 5

0 0

-5 -5

-10 -10

-15 -15
-20 -15 -10 -5 0 5 10 15
Monthly Return World Index
32
Source: Refinitiv Datastream
Ri -Rm (ann) 1,236
IR 0,230
TE(ann) 5,373
t waarde 27,328 0,590
Beta alfa
0,9349 0,0849
SE 0,034 0,144
R² 86,3% 1,534383

33
 Jensen’s
Performance Index

Jensen’s performance index is the vertical intercept

(“ a ”) of the regression line.

Jensen’s Measure is a measure of the value added by the portfolio

manager: a positive a indicates that the portfolio has performed better
than its market-related risk (b) would suggest.

Of course : Jensen’s alfa is only an appropriate measure if the

underlying assumptions are valid (a.o) :

- stable linear relationship

- the market is the only significant risk factor

Jun 6, 2024 34
 Choice of
Benchmark ?

• A benchmark should be :
• a viable alternative
• Data provided continuously
• not easily beaten / Challenging
• low in cost
• identifiable before the fact/transparent
• representative for long term AA-objective...

If you want to look tall, go stand next to a short guy Jun 6, 2024
35
 Earliest Studies

• Jensen (1968 )
• no persistence of outperformance
• active managers tend to underperform
• “…funds simply waste resources”
• This confirms earlier results of:
• Sharpe (1966)
• Treynor-Mazuy (1966) …

But Russ Wermers (2000) restores

some hope...
Cash Holdings / Transaction costs / Management Costs
36
 Distribution of Jensen-a using CAPM

UK Pension Funds Limited statistical significance

450
400
350
300
250
200
150
100
50
0
-0.018

-0.014

-0.01

-0.006

-0.002

0.002

0.006

0.01

0.014

0.018

> 0.02
a-values 37
 Persistence in
(out)performance
•
LT persistence?

~0
Legendary outperformers in the
11 past
Jun 6, 2024
(but can you pick the next one?) 38
Journal of Finance

August 2000

Stock Selection
 Outperformance 1,3%

Fund Return
 Underperformance 1%

Difference 2,3% ?
0,7% Non-stock Holdings

0,8% Transaction costs

0,8% Expenses

06/06/2024
 Fama & French
3 factor Model
set rit  R it  R ft and rmt  R mt  R ft
CAPM

rit  α i  β i .rmt  e it Additional

Risk Factors ?
Market is not only risk factor  3  factormodel

rit  a i  b i .rmt  s i .SMB t  h i .HML t  e it

These risk factors allow for a further correction of

Excess Return, allowing to distinguish investment skill from luck

Excess return is attributed to Market risk and style factors HML and SMB
40
 Factor Definitions
• Size factor (SMB)
• Performance difference between 30% smallest stocks
and 30% largest stocks based on market capitalization

• Value factor (HML)

• Performance difference between 30% of stocks with
highest book-to-market ratio and 30% of stocks with
lowest book-to-market ratio
 See Kenneth French database or AQR database

Example of factor loadings

US Global
Date MKT SMB HML WML MKT SMB HML WML
20100630 -5,08% -3,28% -2,86% -3,14% -2,32% -1,06% -2,08% -0,28%
20100730 7,02% 0,16% 1,20% 2,11% 8,38% -0,65% 2,45% 0,79%
20100831 -4,29% -3,29% -1,32% 0,86% -3,51% -1,15% -2,06% 2,40%
20100930 9,14% 3,19% -1,87% 1,57% 9,77% 2,00% -0,43% 2,35%
20101029 3,84% 0,34% -1,72% 0,69% 3,51% 0,71% -0,57% 1,16%
20101130 0,51% 3,06% -1,15% 3,19% -2,72% 2,16% -1,66% 4,11%
20101231 6,71% 1,20% 4,14% -2,88% 7,42% 1,89% 2,17% -0,38%
20110131 1,91% -2,30% 1,13% -0,39% 1,95% -0,32% 2,68% -1,66%
20110228 3,81% 1,72% 0,32% 1,90% 3,06% 0,23% 0,00% 1,09%
20110331 0,33% 2,04% -1,77% 3,42% -0,41% 1,78% -0,97% 2,49%
20110429 2,87% -0,86% -1,68% 0,17% 4,32% -0,64% -1,16% 1,79%
20110531 -1,49% -0,81% -1,06% -0,42% -2,20% -1,03% -1,38% 1,04%
20110630 -1,84% -0,37% -0,94% 2,04% -1,81% -0,68% -0,77% 2,09%
20110729 -2,25% -1,45% -1,43% 0,59% -1,62% -0,39% -1,72% 0,76%
20110831 -5,76% -3,09% -1,44% 0,11% -7,61% -1,71% -2,48% 0,67%
20110930 -8,49% -3,66% -1,72% -2,45% -9,86% -3,01% -1,13% -1,60%
20111031 11,40% 3,14% 1,46% -1,01% 10,53% -0,09% 1,76% -1,00%
20111130 -0,62% -0,34% -0,67% 3,80% -3,71% -1,10% -1,82% 4,73%
20111230 0,37% -0,31% 1,66% 1,69% -0,62% -0,53% 0,76% 2,20%
20120131 5,41% 2,01% -0,05% -7,09% 5,78% 2,23% 2,07% -7,62%
20120229 4,12% -1,56% 0,67% -0,13% 5,13% 0,47% 0,80% -2,87%
20120330 2,40% -0,39% -0,37% 1,55% 0,03% -0,19% -1,41% 3,21%
20120430 -0,68% -0,61% -1,54% 3,42% -1,12% -0,08% -2,68% 5,02%
20120531 -6,56% -0,16% -1,22% 6,75% -9,55% -0,11% -1,82% 6,58%
20120629 3,82% 0,90% 0,67% -1,35% 5,24% -1,69% 0,89% -0,21%
20120731 1,03% -2,59% -0,13% 3,14% 1,01% -2,11% -1,50% 3,61%
20120831 2,62% 0,93% 0,62% -2,68% 2,51% 0,70% 0,50% -2,17%
20120928 2,64% 0,87% 1,43% -1,19% 3,23% 0,80% 1,12% -1,51%
20121031 -1,42% -0,22% 3,00% 0,59% 0,09% -0,21% 1,64% 0,61%
20121130 0,61% 0,35% -1,23% 0,19% 1,35% -0,80% -1,19% 1,99%
20121231 1,24% 2,15% 3,05% -2,84% 2,42% 1,92% 3,56% -1,79% 42
 MSCI 3 Factor

t waarde 25,13845 -1,99897 -0,73502 0,390486

M HmL SmB alfa
CAPM
0,931818 -0,09606 -0,06034 0,05571
Ri -Rm (ann) 1,236
IR 0,230 SE 0,037067 0,048055 0,082087 0,142668
TE(ann) 5,373 R² 86,9% 1,511857 #N/A #N/A
t waarde 27,328 0,590
Beta alfa
0,9349 0,0849
SE 0,034 0,144
R² 86,3% 1,534383

43
Cumulativ
e Cumulative Performance

add return
by

HmL and
SmB
factors

USA
06/06/2024 10:35 AM 44
 SMB

HM
L

06/06/2024 10:35 AM 45
 Cumulative
Relatieve
Relatieve
Relatieve
Prestatie
Prestatie
Prestatie
Groei
Groei Groei
tovtov
Value
tov
Value
Value 196.84 12/31/2021
60 60 60 60
200 200

40 40
180 40
180 40

160 160
20 20 MSCI USA :Groei t.o.v. MSCI USA: Value 20 20
-0.551
168% -0.551 %
140 140
0 0 0 0

120 120
-20 -20 -20 -20
0.596 % 0.596
7/21/2023
% 7/21/2023
MSCI World:
MSCI World:
GrowthGrowth
- MSCI
- MSCIWorld:
World: Value
Value
100 100
-40 -40 -40 -40
13 14 13
13 15
14
14 15
1516 16
16 1717 18
18 1919 20 2021 21
22 23 22 23
1Y % change 1Y
MSCI
of % MSCI
change
USAAM :GWORLD
of
- Net
MSCIReturn/MSCI
WORLD
:G - Net
:GUSA
- Net
Return-1Y
:V
Return-1Y
- Net Return
%
%change
change
of MSCI
of MSCI
WORLD
WORLD
:V - Net Return
:V - Net Return
06/06/2024 10:35 46
Source:
Source:Source:
Refinitiv
Refinitiv Datastream
Datastream
Refinitiv Datastream
 Cumulative
Cumulative
Relatieve
RelatievePrestatie
Prestatie Groei
Groei
tov Value
tov Value
196.84 12/31/2021173.45

180 180
200 200
170 170

160 180 180 160

150 150
160 160
MSCI USA :Groei t.o.v. MSCI USA: Value
140 140
MSCI WORLD :Groei t.o.v. MSCI World: Value
168
140 140
130 130
147.75 7/21/2023
120 120
120 120

110 110

100 100 100 100

13 14 13 15
14 1516 16 1717 18
18 1919 20 2021 21
22 23 22 23
MSCI WORLD MSCI:G10:35
USA
- Net
:G -Return/MSCI
Net Return/MSCIWORLD
USA :V - Net
:VReturn
- Net Return
06/06/2024 AM 47
Source:Source:
Refinitiv Datastream
Refinitiv Datastream
 Cumulative Relatieve Prestatie Groei tov Value 196.84 12/31/2021

200 200

180 180

160 160
MSCI USA :Groei t.o.v. MSCI USA: Value

168
140 140

120 120

100 100

13 14 15 16 17 18 19 20 21 22 23
MSCI USA :G - Net 10:35Return/MSCI USA :V - Net Return
06/06/2024 AM 48
Source: Refinitiv Datastream
 3 years Rolling Regression

HmLt = a + b(Rmt-Rft)+ et
t-waarde rechteras

06/06/2024 10:35 AM 49
 SmBt = a + b(Rmt-Rft)+ e t
3 years , Rolling Regressions Monthly calculations

t-waarde
rechteras

06/06/2024 10:35 AM 50
 Mark M. Carhart

On Persistence in Mutual Fund Performance

Journal of Finance March 1997

Abstract

• Common factors in Stock Returns & Investment

expenses almost completely explain persistence in
equity mutual funds
• “Hot hands ”: 1-year Momentum
• Not explained : strong underperformance by worst-return
mutual funds

• “Results do not support the existence of skilled or informed

mutual fund managers …”
1962-1993
51
 Mark M. Carhart
On Persistence in Mutual Fund Performance
Journal of Finance March 1997

set rit  R it  R ft and rmt  R mt  R ft

CAPM

rit  α i  β i .rmt  e it
3  factormodel

rit  a i  b i .rmt  s i .SMB t  h i .HML t  e it

4  factormodel Carhart-measure

rit  a i  b i .rmt  s i .SMB t  h i .HML t  p i .PR1YR t  e it

PR1YR = return on short term winners- short term losers

52
 Factor Definitions

• Size factor (SMB)

• Performance difference between 30% smallest stocks and
30% largest stocks based on market capitalization
• Value factor (HML)
• Performance difference between 30% of stocks with
highest book-to-market ratio and 30% of stocks with lowest
book-to-market ratio
• Momentum factor (PR1YR)
• Performance difference between 30% of stocks with
highest 12 month returns and 30% of stocks with the
lowest 12 month returns
 Mark M. Carhart
On Persistence in Mutual Fund Performance
Journal of Finance March 1997

July 1963-December 1993

Monthly
Table II
Excess Cross Correlation
Factor Return t-Stat
VWRF 0,44 1,93 RMRF SMB HML PR1YR
RMRF 0,47 2,01 1
SMB 0,29 1,89 0,32 1
HML 0,46 3,42 -0,36 -0,37 1
PR1YR 0,82 4,46 0,01 0,01 -0,16 1

54
 Mark M. Carhart
On Persistence in Mutual Fund Performance
Journal of Finance March 1997

Table a

Form portfolios on lagged 1-year returns and

estimate performance on the resulting portfolios

On January 1 form 10 portfolios of funds

Hold the portfolios for 1 year,
then re-form them
Further subdivision in 1 A,B,C and 10 A,B,C

55
1.00
0.80
0.60 Excess Return

0.40
0.20
CAPM a
0.00
1A 1B 1C 1 2 3 4 5 6 7 8 9 10 10A 10B 10C
-0.20
-0.40 Carhart
a
-0.60
-0.80
-1.00 56
 Mark M. Carhart
On Persistence in Mutual Fund Performance
Journal of Finance March 1997

• 1 year results
• some evidence of increased probability for future winners from past
performance
• Top decile composition dramatically differs (>80% turnover year
on year)
• “ … the year-to-year rankings on most funds appear largely random…”
• “… relatively high returns are short-lived…”
• 1-year performance persistence is mostly eliminated after 1 year
• 2-5 year returns
• less PR1YR-influence
• no evidence of persistence

57
 Persistence?
“The evidence (…) suggests 3 (…) rules-of-thumb (…) :
(1) Avoid funds with persistently poor performance
(2) Funds with higher returns last year have higher-than-average
returns next year, but not in the years thereafter
(3) (…) costs (…)
While the popular press will no doubt continue to glamourize the
best performing mutual fund managers, the mundane explanations of
strategy (…) accounts for almost all of the (…) predictability in
mutual fund returns.”

Mark M. Carhart
On Persistence in Mutual Fund Performance
Journal of Finance March 1997
58
 Cumulatief

1960-2022
Systematische
teloorgang HML SMB
Sterke prestatie MoM
Behalve 2008 …
 Cumulatief

Momentum presteerde
relatief slecht in de
bear markets van 2000
en 2008 maar kon
nadien hernemen

06/06/2024 60
Long Only

06/06/2024

61
Long Only

06/06/2024

62
06/06/2024 63
 MSCI
USA
Momentum

long Only
x 1,000 x 1,000

Macro-Outlook
Long19,932
Only 4/19/2024

• Overview of charts 15,636

220 220
10.0 MSCI USA MOMENTUM
10.0
200
SHANGHAI SHENZHEN CSI 300 evolutie 2020
200
5.0 5.0
180 180

160 160

1.0 140 140 1.0

8,304.82
S&P Returnindex
0.5 120 120 0.5
SHANGHAI SHENZHEN CSI 300 evolutie 2015

100 100

0.1 2020 2021 2022 2023 2024 0.1

SHANGHAI SHENZHEN CSI 300 SHANGHAI SHENZHEN CSI 300 in 2015
80 85 90 95 00 05 10 15 20
Source: Refinitiv Datastream
Rebase MSCI USA MOMENTUM - Net Return to 100
Rebase S&P 500 COMPOSITE DS CALCULATED - Total Return Index to 100
Rebase MSCI USA - Net Return
S Duchateauto 100 65
Source: Refinitiv Datastream
 3 Factor
AQR
t waarde 25,58976 -1,72868 0,299738 0,966727
CAPM M HmL SmB alfa
Ri -Rm (ann) 1,236 0,922926 -0,09263 0,027798 0,139644
IR 0,230 SE 0,036066 0,053583 0,092743 0,144451
TE(ann) 5,373 R² 86,5% 1,504987 #N/A #N/A
t waarde 27,328 0,590
Beta alfa
0,9349 0,0849 4 Factor
SE 0,034 0,144
R² 86,3% 1,534383
t waarde 23,3952 -1,67555 0,228557 -0,33669 1,020121
M HmL SmB MoM alfa
0,91784 -0,10239 0,021681 -0,01959 0,156608
SE 0,039232 0,061108 0,094862 0,058178 0,153519
R² 86,5% 1,510874 #N/A #N/A #N/A

66
WmLt = a + b(Rmt-Rf)+et
3 years , Rolling Regressions Monthly calculations

67
 Performance evaluation:
A roadmap
Performance
evaluation Correction of excess return for risk factors

(Risk Adjusted) R jt  R Ft   j  b1 j ( R Mt  R Ft )
Performance
Measurement
 b2 j SMB t  b3 j HML t  b4 j WML t  b5 j  (TED ) t  ...   t

a evolves from a 1 factor Jensen-a to a 3 factor FF-a , 4 factor Carhart-a and

a 5 factor a

The independent variables are considered as risk factors that

need to be corrected for to allow for a risk-corrected interpreation
of (excess) return.
68
 Performance evaluation
Performance Correction of excess return for risk factors
evaluation CAPM

(Risk Adjusted) R jt  R Ft   j  b1 j ( R Mt  R Ft )
Performance
Measurement  b 2 j SMB t  b3 j HML t  b 4 j WML t  b5 j  (TED ) t  ...   t

3 FF
4 F Carhart The TED spread is calculated as the difference
between the 3-month LIBOR and the 3-month
T-Bill interest rate. The TED spread is an
indicator of perceived credit risk in the general
economy and the financial sector in particular

69
 Indicator of Financial Systemic Risk
4 Financial sector 4

3 3
De Amerikaanse financiële sector werd reeds
in 2009 gestabiliseerd met de benodigde
liquiditeit
Hierdoor 2kon de impact van de financiële 2
crisis sneller verwerkt worden
Impact was ook duidelijk minder erg :
Amerikaanse banken weren veel kleiner t.o.v.
het BBP 1en implementatie van Bazel II had 1
vertraging opgelopen

0 0

-1 -1
2008 2010 2012 2014 2016 2018 2020 2022
TED SPREAD RATE/100 Recession 70