Explain whether each stock is defensive or cyclical. Compare alpha of each stock to what you would expect according to the CAPM, and describe your conclusion from this comparison.

Accounting by Geoffrey

Question (100 points)

For this question you will need to do research and then answer your questions in a Word document and upload here. The easiest way to solve the problem would be to use the R script from the lecture as it requires very few modifications for the purpose of this problem set.

With your solutions please submit all data files, code/spreadsheet, and written responses with any copied and pasted tables you produced while solving it.

For the FAANG stocks (Meta, Amazon, Apple, Netflix and Google (now Alphabet)) for September 2015 to August 2022 from Yahoo Finance, please do the following:

Estimate CAPM’s alpha and beta for each of the FAANG stocks.

Explain whether each stock is defensive or cyclical. Compare alpha of each stock to what you would expect according to the CAPM, and describe your conclusion from this comparison. Finally, estimate the Fama-French-3-factor model. Look at the alphas from these models, and explain any differences between these and the CAPM alphas.