An investor models the excess return for Amazan via the market model. Suppose that the sample size is 102 observations, the value of for Amazon is = 1.107, the standard error associated with the coefficient is SE() = 0.0348. She tests the null hypotheses that the value of the stocks beta is one, against a one-sided alternative that the stocks beta is greater than the markets beta. The level of significance is 5%.

a. Write down the regression model which uses the market models factors as explanatory variables and define the variables.

b. Write down the null and the alternative hypothesis.

c. Conduct the test. What do you conclude? Are the analysts claims empirically verified? You can find the t-tests critical values in Table A1 in the Appendix at the end of the exam paper.

d. The analyst also tells you that shares in Cl PLC have no systematic risk, in the sense that the returns on its shares are completely unrelated to movements in the market. The value of beta and its standard error are calculated to be 0.5 and 0.25, respectively, and the model is estimated using 52 observations. Write down the null and alternative hypothesis. Form and interpret a 95% and a 99% confidence interval for beta.

e. Do the tested hypotheses concern the actual values of the coefficients (i.e. ), or their estimated values (i.e. ), and why?