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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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