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An analyst has run several regressions hoping to predict stock returns, and wants to translate this into an economic interpretation for his clients. Return =
An analyst has run several regressions hoping to predict stock returns, and wants to translate this into an economic interpretation for his clients. Return = 0.03 + 0.020Beta - 0.0001MarketCap (in billions) + A correct interpretation of the regression most likely includes:
A. a stock with zero beta and zero market capitalization will return precisely 3.0%.
B. prediction errors are always on the positive side.
C. a billion dollar increase in market capitalization will drive returns down by 0.01%.
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