Given your results for Question 1, investigate the extent to which beta in one period predicts beta in future periods and whether alpha in one period predicts alpha in future periods. Regress the beta of each fi rm in the second period (Y) against the beta in the fi rst period (X). (If you estimated regressions for a dozen fi rms in Question 1, you will have 12 observations in this regression.) Do the same for the alphas of each fi rm. Use the coeffi cients you found to forecast the betas of the 12 fi rms for the next two-year period.

 LO.1