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Consider the following linear regression model: Ri+Rf=ai +bi(Rmkt-Rf)+ei The i in the regression a measures the deviation from the best fitting line and is zero

Consider the following linear regression model:

Ri+Rf=ai+bi(Rmkt-Rf)+ei

The iin the regression

a measures the deviation from the best fitting line and is zero on average.

b measures the sensitivity of the security to market risk.

c measures the historical performance of the security relative to the expected return predicted by the SML.

d measures the diversifiable risk in returns.

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