Hi guys, i gave the Exam 1 PM from Schweser’s Practice Exam (Book 2) yesterday a shot and the solution provided by Schweser caught me off-guard.
Question 21 which deals with style factors. Long story short, we should look at the following table:
Regression Coefficients:
Debt/equity:
Current month: +0.75
Next month: -0.60
Size:
Current month: -0.30 Next month: +1.20
Going straight to the answer, the book says that the analyst should expect small companies to outperform large companies in the current month (…)
My understanding is that the size factor reward investors for buying small cap companies and selling large cap ones. if the factor presented a negative beta on that month, it means small companies underperformed big ones.
the answer is, however, that small companies outperform large companies in the current month
Is the schweser’s solution incorrect or just my understanding?
Thanks in advance!
ps,: i didnt post the question here since im already unconfortable on posting so much details, dont want to infringe any rules here!