Essay question It's been a while since you last saw your friend with whom you used to study nance together. After graduation, your friend moved to the asset management Industry, and you, well, you eventually became a tenured professor of finance. Today is the date when you nally get to meet her again. After some general chitchat, your friend starts talking about issues related to the asset management business. Asking for your advice, she shows you a piece of paper containing a regression equation: Ti; Tf.t = tr,- + 53(me rf'g) + 61' (AVIXt) + att- rm -+ r" excess return on stock i on day t rm, r}, excess return an a stock market index on day t AVIX, the change in the Vi}! index on day t " We estimated this time-series regression for all stocks that we have in our historical database. It turns out that while most stocks have negative sensitivities, 9,, to the change in the VIX index, some stocks have reliably positive sensitivities. Remember that the VIX index measures the volatility on the aggregate stock market: its value increases in more volatile times and decreases in less volatile times. And a higher volatility generally tends to be associated with increasing uncertainty, market turmoil and bad states of the economy. " She pauses with a smile and stares intensely at you. You feel that she knows the answer to the question she is asking next but wants to test your knowledge. She continues: "These stocks that have positive parameter values for 6,. Let's assume those parameter values are stable so that they will be positive in the future also. Since you are an expert on risk and return, what can you say about these stocks' expected returns during the next couple of decades? Will they be high or low relative to other stocks? And what's the logic behind your reasoning .7" Luckily, during the last weeks, you spent several hours in class discussing this logic with your students, so you immediately know what you should reply to her. With an even broader grin than what she displays, you proceed to give her the right answer. Use your knowledge of nance theory to evaluate whether stocks with positive values of 6, (spelled "theta"? should arguably have higher or lower expected returns relative to stocks with negative values of 9,. Motivate your answer briefly