Question

c) You are about to regress the historical monthly excess returns of Google (RGoog e ) on the three Fama-French factors – Excess S&P 500 returns (Rm e ), SMB factor returns (SMB), and HML factor returns (HML). In other words, in each month t in your sample, you will run the following OLS regression: RGoog,,t e = α + β1Rm,t e + β2SMBt + β3HMLt + εt , where εt is an error term in month t. What are the expected signs (+ or -) of the regression parameters α, β1, β2, and β3? Briefly explain.

Answer 1