FIN 449 Applied Equity Investment (Factor assignment ).

I’m working on a Business question and need guidance to help me study.

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use the provide data (Factor List 3.xls)the IC time series for four factors.To judge the best factor, I’d like you to calculate the following four metrics:

1. The average IC for each of the 4 factors

2. The standard deviation for each of the factors

3. The information ratio which is the average IC divided by the standard deviation of the IC. A higher positive number is better. This measures the average performance of a factor per unit of variability. In other words it measures the benefit per unit of risk.

4. The number of months that the IC is positive. To calculate this, you will need to count the number of positive IC values and divided this number by the total number of IC values. You will get a ratio which you can display in percentage terms.

In addition to these four measures, you will also plot each of the factor IC time series in a bar chart.

You will use #3, #4 and the time series graph to evaluate which factor is the best. The factor with the highest information ratio, the highest percent of positive IC’s and a time series graph that shows the most consistent IC performance through time will be the best factor. You may have to make a subjective decision as one factor may not be the best in all three evaluations.

Create a table that brings all the measures together.

for all instruction see Factor analysis assignment.doc

FIN 449 Applied Equity Investment (Factor assignment )

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