Aptitude test: Can you be a stock analyst?

(a) Look at the company names associated with the data in the date file. Bearing in mind what you know about the way that stock returns vary according to the cyclicity of the stock (e.g. whether the stock varies with the general market, and if so, whether “more so”), give the companies a provisional ranking as to where you think their betas would be, relative to one another.

(To use the appropriate terminology, b>1 is said to be an “aggressive”

stock, and b<1 a “defensive” one.)

(b) Check your economic intuition by actually computing the time series beta for each of the stocks given in the data file. List the betas in ascending or descending order, and see how closely this corresponds with your a priori gut feeling about them.

(Of course, to be a good stock analyst, you also have to be able to constantly change your mind without batting an eye!)