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For instance , while the price of books is adjusted only twice a year , the price of gasoline changes once a week ( on

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For instance , while the price of books is adjusted only twice a year , the price of gasoline changes once a week ( on average ) . It means that there are more price rigidities in the book industry than in the gasoline industry . ( a ) I decided to run regressions of the realized returns of a well - diversified portfolio that is long stocks of industries with low price rigidities and short stocks of industries with high price rigidities . I labeled this portfolio as the IRHIR portfolio . I ran the regression | LRHR = CL LRHIR + BURNR ( "MARKET - " ; ) + ELRHR. for two different periods : the inflationary period ( 1970 - 1980 ) and the stable period ( 1980 - 2000 ) . The regression results for the inflationary period are : Coefficient I- Statistic P- Value Intercept 0 . 56 2.51 0 . 0 123 Slope 0 . 27 4.95 9. 61 E - 07 The regression results for the stable period are :" Coefficient I - Statistic P- Value Intercept - 0. 04 0 . 18 0. 8572 Slope 0 . 10 2.52 0. 0120 Are the stocks with high price rigidities outperforming or underperforming the stocks with low price rigidities ? Do you observe any difference in the performance across the two periods ? For the rest of this question , assume that the risk free rate is 2% and the risk premium for* the market factor is 9% . (b ) I decided to create the " IRHIR " systematic risk factor and offer the SK ( well - diversified ) Fund . The SK Fund has the following expected returns and sensitivities to the Market and LRHR factors :"

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