MARK 6390 Marketing Topic in Marketing-Finance Interface

MARK 6390 Marketing Topic in Marketing-Finance Interface

Quiz 1

Returns and Betas

·  Due at the end of class on Feb. 26, 2008

From CRSP online database (https://wrds.wharton.upenn.edu/index.shtml) get data for the following publicly traded US companies (NYSE/AMEX/NASDAQ). These firms are top/bottom Global Brands ranked by BusinessWeek (http://bwnt.businessweek.com/interactive_reports/top_brands/). Assemble the monthly data in a spreadsheet in the following format:

Months / Stock Firm / Holding Period Return / Value-Weighted Return (includes distributions) / Equal-Weighted Return (includes distributions) / Fama-French MKT* / Fama-French HML / Fama-French SMB / Fama-French MOM / Risk-Free rates
Top 3
Jan 96- / COCA-COLA CO
….
Dec 2006
MICROSOFT CORP
INTL BUSINESS MACHINES CORP
Bottom 3
MOTOROLA INC
KRAFT FOODS INC
JOHNSON & JOHNSON

*Fama-French 4 factors monthly (MKT, HML, SMB, MOM) and risk free rates at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

1) Email me your excel data file and results file. Submit hard copies for your answers to questions below.

2). Present one bar chart of holding period returns of the top 3 firms vs. Fama-French MKT; one bar chart of holding period returns of the bottom 3 firms vs. Fama-French MKT; one bar chart of holding period returns of the top 3 firms vs. holding period returns of the bottom 3 firms.

3). Calculate monthly excessive returns (holding period returns-risk free) for all firms, and present one line chart of the results for all firms. Calculate annul continuously compounded-stock return for each company, and present one line chart of the results for all firms.

4). Calculate betas (using regression) for each stock firm for the whole time-calendar. Each firm has 4 betas (value-weighted, equal-weighted, FF-3, FF-4). What is the meaning of beta? Write down two possible reasons for the differences regarding the betas of top 3 firms vs. bottom 3 firms. (tips: http://en.wikipedia.org/wiki/Beta_coefficient).

5). Calculate mean monthly firm-idiosyncratic returns (using regression) for each stock firm for the whole time-calendar. Each firm has 4 results (value-weighted, equal-weighted, FF-3, FF-4). What is the meaning of firm-idiosyncratic returns? Write down two possible reasons for the differences regarding the firm-idiosyncratic returns of top 3 firms vs. bottom 3 firms. (Tips: papers #3, #7).

6. Obtain annual data from COMPUSTAT for variables listed below (another excel file at the annul level, email me as well) for all the firms. Run regressions with all these COMPUSTAT variables at t-1 year, time dummy, firm dummy, and annual Fama-French factors (MKT, HML, SMB, UMB) as the IVs and annul continuously compounded-stock return as the DV. Try additional regressions with squares and interactions for some IVs at your choice with creative thinking. Interpret your results.

Source: Paper #20

(Next quiz will cover I/B/E/S, EXECOMP, etc. databases).