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9. Measuring risk Refer to the top-right panel of Figure 9.2. What proportion of U.S. Steel's returns was explained by market movements? What proportion of
9. Measuring risk Refer to the top-right panel of Figure 9.2. What proportion of U.S. Steel's returns was explained by market movements? What proportion of risk was diversifiable? How does the diversifiable risk show up in the plot? What is the range of possible errors in the estimated beta? FIGURE 9.2 We have used past returns to estimate the betas of three stocks for the periods January 2008 to December 2012 (left-hand diagrams) and January 2013 to December 2017 (right-hand diagrams). Beta is the slope of the fitted line. Notice that in both periods, U.S. Steel had the highest beta and Consolidated Edison the lowest. Standard errors are in parentheses below the betas. The standard error measures the range of possible error in the beta estimate. We also report the proportion of total risk that is due to market movements (R). U.S. Steel 2008-2012 U.S. Steel 2013-2017 40 40 pa=0.56 R2 = 0.15 30 304 B = 2.50 (0.28) B = 3.01 (0.93) 20 20 10 -40 -30-20 -10 10 20 30 40 -40 -30 -20 -10 10 20 30 40 -40 -40
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