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?