Question
Hi, can someone help me? Just so confuse about the BSJ model and do not how to analyze it.. Suppose that there are two investors
Hi, can someone help me? Just so confuse about the BSJ model and do not how to analyze it..
Suppose that there are two investors who are trading in a stock exchange over a period of T weeks (one year, i.e. T=52 weeks). The number of the listed securities is equal to n.
The first investor has implemented a trading strategy over this period, yielding a return equal to 7%.
The second investor has implemented a trading strategy over this period, yielding a return equal to 8%.
The estimation of the second stage cross-sectional regression of the Black Scholes and Jensen (1972) model (BSJ model) using the returns of thensecurities over the period of T weeks, is shown below:
E(ri)=0.9+7.2 hatbi
(0.34) (0.01)
where,riis the average return of security i over the T periods andbi
of security i over the T periods. The numbers in brackets correspond to the p-value of the estimated coefficients.
By explaining analytically the BSJ model, justify which investor has outperformed the market portfolio and why? Is this an active or a passive investor and why?
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