Stock return data from CRSP

by | Feb 22, 2023 | finance

 

 

Download stock return data from CRSP and select monthly frequency. Each group should use different data period; I will inform you about it with the group formation. When selecting the Value-Weighted index, use the one that includes distributions. Also, add the variable that captures SIC Industry codes (called SIC Code in CRSP).
Also download Fama-French factor and momentum data from the following link
https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
In this file you also get the market return and risk-free rate.
Task 1 [15 marks]
Use the standard SIC industry classification to create different equally weighted portfolios for each industry separately:
If a firm is missing a classification or it has some strange value move it to the non-classifiable industry. Delete any stock that is in the range: 0100-0999, 9100-9729 and 9900-9999.
1. Make a table that outlines the performance and characteristics of each of the remaining industry portfolios: Average return, Volatility, Beta (CAPM), Sharpe-ratio, average number of firms in each industry portfolio.
2. Create your own equally weighted index from the different industry portfolios. Give each industry an equal weight in each period.
3. Plot the cumulative returns of the industry portfolios over time as well as your own index in a graph.
4. Regress the industry portfolio returns against the Fama-French 3 factor model. What risk factors are you exposed to and to what degree? Do you generate a positive and significant alpha in any of the industry portfolios? (Max 200 words)
Task 2 [15 marks]
Imagine that you are a naïve investor in the year 2003. You decide to start saving some extra money for your retirement. You decide to save £300 per month: £100 in each of the three best performing industry portfolios from Task 1 over the preceding 12 months. You always look back 12 months at the end of each month to determine which industries to invest in.
Thus, at the beginning of each month you need to decide where to invest your new money. The money already invested stays in the industry where it was initially invested. This means that you will potentially hold several different industry portfolios at the same time.
If you do this over the sample period starting at the end of January 2003 with your first investment, until the end of the sample:
1. How is your money distributed over the different industries at the end of your data period?
• Plot the distribution at the end of your data period.
• Plot the development of the value of your different investments in the different industry portfolios over time.
2. What is your total capital gain in % over the total amount invested at the end of your data period?
3. What is your average annual return from this strategy?
4. What if you used a 6-month formation period for your new investments instead of 12 months, how would the results change? (Max 200 words)
Task 3 [15 marks]
Imagine that you do not want to use your own money to invest (unlike in Task 2). As a result, you decide to use a long-short portfolio strategy. If you each quarter go long the best performing industry portfolio and short the worst performing industry over the last 3 months with £300 each:
• How much money will you have amassed at the end of your data period?
• What is your average annual return of the long-short portfolio? (Max 100 words)

 

 

Sample solution

Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell. 

In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.


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God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.

Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.

To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.

 

References

Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.

Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.

Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.

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