Research Essay - QUANTITATIVE METHODS

          The Fama-French three factor model is an asset pricing model that expands the capital asset pricing model by adding two additional factors to the market risk premium to capture risk. The three factors are: • the market risk premium • a size risk premium • a value risk premium The dataset has recently been updated and includes monthly and annual observations. The authors require a careful data analysis prior to any further estimation of the model. You have been asked to write a research essay that does the following: • Outlines the Fama-French three factor model and summarises the properties of the three variables. • Produce line graphs and histograms for each variable and calculate plus interpret measures of central tendency. • Discuss the issues surrounding selection of an appropriate sample size. • Discuss any sample selection bias. • Formulate a null and an alternative hypothesis about a population mean and determine whether to reject the null hypothesis at a given level of significance. • Calculate and interpret the correlation coefficients between the variables. • Explain how outliers can affect correlations.