A researcher is interested in assessing the risk exposure of a particular managed portfolio of UK stocks. She has collected a sample of monthly excess returns on the portfolio (PORTFOLIO) as well as monthly returns on four UK risk factors covering the same time period: the market factor (MARKET) is the excess return on the FTSE 100 index, the size factor (SIZE) is the return on a portfolio of small UK stocks less the return on a portfolio of large UK stocks (where size is measured using market capitalization), the value factor (VALUE) is the return on a portfolio of high value UK stocks less the return on a portfolio of low value UK stocks (where value is measured using the book-to-market ratio), and the momentum (MOMENTUM) factor is the return on UK stocks that have performed strongly over the last year less the return on a portfolio of UK stocks that have performed poorly. All the returns are expressed in decimals. The researcher estimates the multiple linear regression model

EXHIBIT 1 Dependent Variable: PORTFOLIO Method: Least Squares; Sample: 1986M10 2016M12; 363 observations Variable Coefficient Std. Error t-Statistic Prob. C 0.005379 0.001898 2.834781 0.0048 MARKET 0.6697 32 0.039124 17.11797 0.0000 SIZE 0.833417 0.053539 15.56653 0.0000 MOMENTUM 0.095220 0.050715 1.877544 0.0613 VALUE 0. 104161 0.055652 1.87 1643 0.0621yt = a + BIXit + B2xzt + Baxat + BAXat + Et where y, = PORTFOLIO; XIt = MARKET; x2t = SIZE; x3: = MOMENTUM; x4t = VALUE; Using the OLS estimation method she obtains the estimation output shown in EXHIBIT 1.R-squared 0.602309 Mean dependent var 0.010881 Adjusted R-squared 0.597866 S.D. dependent var 0.054137 S.E. of regression 0.034331 Akaike info criterion -3.891877 Sum squared resid Schwarz criterion -3.838235 Log likelihood 711.3757 Hannan-Quinn criter. -3.870555 F-statistic 135.5493 Durbin-Watson stat 0.784676 Prob(F-statistic) 0.0000 00