Assignment 2

The files SP500TBTESLA.xlsx and SP500TBTESLA.txt contain daily observations on

three months T-bill rates, and daily closing prices of the S&P 500 index and TESLA

stock between 2019/01/02 and 2021/12/31.

Use the code in file Assgn2.txt to calculate the excess returns on S&P 500 and TESLA

and estimate the CAPM model, as shown on page 239 of the textbook.

1.

Write the estimated regression model with and without the intercept. Refer to

them as Model 1 and Model 2.

2.

Explain what parameters are estimated and what hypotheses are tested in the

computer output for Models 1 and 2.

3.

Comment on the values of the estimated parameters and the outcomes of tests of

their statistical significance for Models 1 and 2.

4.

Define and write the correlation coefficient. Use your output to demonstrate that

there exists a statistically significant correlation between the excess returns on

TESLA and excess market returns in Models 1 and 2.

5.

Are the results of the estimation without an intercept consistent with those when

the intercept is included?

6.

What is the financial interpretation of

test of the null hypothesis "intercept = 0" ?