Famafrenchdateyour Stocks Returnyour Stocks Excess Returnxsmarketret Apply several factor models to the stock of Verizon using regression analysis: the CAPM, Fama-French 3-Factor model, and Carhart 4-Factor model. Use daily returns from December 30, 2013, to December 31, 2018, calculated from adjusted closing prices downloaded from Yahoo Finance. Obtain explanatory factor data from the provided Excel file ‘project4FFmomentumdaily.xls’. Run regressions in Excel, interpret the results (adjusted R-squared, coefficients, significance), and compare the models. Write a 2-3 page report answering specific questions about each model’s explanatory power and factor significance.
Paper For Above instruction In the realm of asset pricing and financial analysis, factor models serve as essential tools for understanding the determinants of stock returns. This paper applies three prominent models—the Capital Asset Pricing Model (CAPM), the Fama-French 3-Factor model, and the Carhart 4-Factor model—to Verizon Communications Inc.’s stock returns over a five-year period, from December 30, 2013, to December 31, 2018. The objective is to evaluate how well these models explain Verizon's stock returns by analyzing regression outputs and interpreting key statistics such as adjusted R-squared, beta coefficients, and factor significance. Data Collection and Processing The initial step involves gathering daily adjusted closing prices for Verizon, accessible via Yahoo Finance. Prices from December 27, 2013, through December 31, 2018, were downloaded and processed in Excel to compute daily returns using the standard formula: Ri = (C_t – C_{t-1}) / C_{t-1}, where C_t is the adjusted closing price on day t. This calculation results in a series of daily excess returns for Verizon, which serve as the dependent variable in subsequent regressions. Explanatory factors—including the market return, size, value, and momentum—were obtained from the supplied Excel file ‘project4FFmomentumdaily.xls’. These factors include the excess market return (E(Rm) – Rf), SMB (small minus big), HML (high minus low book-to-market), and UMD (up minus down momentum). Regression Analysis and Model Specification For each model, regression analyses were performed in Excel using the Data Analysis tool. The models are