SAS - Regression analysis

FIN 419 OL

Finance Analytics & Modeling

Summer Term 2020

Dr. Jing Zhao

Assignment II:

The Multiple Regression Analysis – Predicting Stock Returns Using 3- and 4-Factor Models

(Due @ 10PM on Saturday July 25th)

Instruction:

This is a group assignment where students make their own choices of stock/company to estimate. Four

groups (Group 5, 6, 7 & 8) will each submit a video recording of their group presentation of their

work (e.g., you may use Zoom or other softwares of your choice to record group presentation and email

me the link to your video) and the rest of the class submit ONE group solution write-up by the due date

and time via email: [email protected]. Please interpret your regression analysis results in the solution

write-up. Recorded videos will be shared with the class, followed by which I will comment/give feedback

on each of the four presentations via a video recording.

Important: For this assignment, please watch specially Lecture video “WK 4-3” for SAS program and

interpretation of the regression results; and for the background on Fama-French-Carhart four factors,

please watch Lecture vidioes “WK 3-3” & “Week 3-4”.

a) To find the stock returns, the following provides the procedure for your information just in case you’d

like to use a different stock/company than in assignment I:

1. Go to wrds website at : https://wrds-web.wharton.upenn.edu/wrds/

2. Login using user name: fin419ol password: Summer202006 (Note that both are case sensitive)

3. Scroll down the screen and hit “I agree with the terms” button

4. Hit “Home” tab

5. Under tab “Your Subscriptions” choose “CRSP”

6. Then choose “Stock/Security Files”

7. Choose “Monthly Stock File”

8. “Step 1: Choose your date range” choose the begin and end month as you prefer (the longer the

time range the larger the sample size and the smaller the standard errors)

9. “Step 2: Apply your company codes” you can choose “TICKER” then put the ticker of the stock

you’ve chosen into “Compnay Codes”. Click on “Code Lookup” to look for the ticker of the

stock if needed.

10. “Step3: Query Variables” please at least choose the following variables from the “Search All”

tab:

Company Name

Ticker

Holding Period Return

Return on S&P Composite Index

11. “Step 4: Select query output” choose Output Format in “Excel spreadsheet (*.xlsx)”

12. Hit “Submit Query” the wait for the task to complete and download the Excel dataset

b) To find the 4 risk factors, the following provides the procedure for your information:

FIN 419 OL

Finance Analytics & Modeling

Summer Term 2020

Dr. Jing Zhao

1-4 repeats the steps in a)

5. Under tab “Your Subscriptions” choose “Fama French & Liquidity Factors”

6. Then chose “Factors – Monthly Frequency”

7. “Step 1: Choose your date range” choose the begin and end month as you prefer (the longer the

time range the larger the sample size and the smaller the standard errors)

8. “Step 2: Choose factors for query” choose all the 5 variables

9. “Step 3: Select query output” choose Output Format in “Excel spreadsheet (*.xlsx)”

10. Note – Please change the variable names, datafile names, and the excel spreadsheet “Sheet”

name for both stock excel file and the factors file to be consistent with the SAS program.

c) Run SAS regression analyses and interpret the outputs in the same manner as we discussed in the

lecture videos

1. Run the regression of stock returns on the three factors

2. Comment on the SAS regression output including

a. Coefficient estimates on the intercept and the factors (the sign and magnitude that

indicates the economic significance) and statistical significance (t-stat & p-value)

b. Overall fit and validity of the model: F-stat and its p-value

c. Goodness of fit of the model: R2 and Adjusted R2.

3. Run the regression of stock returns on the four factors

4. Comment on the SAS regression output including a-c as in Step 2.

5. Compare and comment on the differences between the two regressions (3- vs. 4-factor model)

6. Anything you’ve learnt from these exercises and would like to share

Have FUN!