Question:The spreadsheet “Two_factor_model” displays the monthly data for excess return on the market (MKTRF), risk-free interest rate (RF), and the momentum factor (UMD). Pick up two stocks randomly and get their monthly price data from Yahoo! Finance for the period December 1999 – December 2004.
a) Calculate the stocks’ monthly return and run the following regression:
rit - rf = ai + bi1MKTRF + bi2UMD + eit
Note that here risk-free rate is not constant, but changes for each month.
Attachment:- Spreadsheet-Two factor model.rar