# How to interpret intercept and coefficient and significance (portfolio return French)

#### Statisticbeginner

##### New Member
Hi there!

I am new to this forum and very happy for beeing able to ask for help here. I am currently struggling with an exercise which probably isnt that hard but yet very difficult for me. It goes as follows:

On his website, Kenneth French provides access to returns of different types of portfolios. One
of them is based on the past stock performance (momentum - returns computed during
month -12 to month -1). The loser portfolio is composed of stocks from the first decile (the
worst past returns) and the winner portfolio is composed of stocks from the last decile (the
largest past returns). We estimate the two following regressionsfor loser, winner, and the zero
cost portfolio (winner minus loser, wml):

Rt - Rft = alpha + beta + mktt + et (A)
Rt - Rft = alpha + beta + mktt + S * smbt + H + hmlt + et (B)

Where mkt is the excess return on the market, smb and hml are the Fama and French (1993)
size and book-to-market factors.

The results are reported in the following table (more than 50 years of monthly returns):
(1) (2) (3) (4) (5) (6)
looser winner wml looser winner wml

mkt 1.451 1.178 -0.272 1.379 1.044 -0.335
(0.000) (0.000) (0.002) (0.000) (0.000) (0.000)

smb 0.469 0.417 -0.0515
(0.000) (0.000) (0.719)

hml 0.0969 -0.330 -0.427
(0.394) (0.000) (0.011)

_cons -0.955 0.508 1.464 -1.090 0.582 1.672
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)

N 606 606 606 606 606 606
R-square 0.650 0.718 0.031 0.679 0.778 0.057
p-values in parentheses

Can you help me explain me these:

a. How do you interpret the coefficients and the intercepts of the regressions(A) and (B)?
b. Are the coefficients significant at the 1% level (p-values are in parentheses under each
coefficient estimate)? What could you conclude on the performance and the risk
profile of these portfolios?
c. What columns should you read to measure the performance of the strategy that
consists of buying a portfolio of winners and selling a portfolio of losers? Discuss its
performance.

I know I have to provide some information what I so far have done but really have some big troubles getting started... so I dont expect someone to write a full answer

Thank you very much for your attempt to help or just giving me a hint. Cheers

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