ID 20 pts Jenny is interested in purchasing a portfolio of stocks based upon advice from one of her usually well-informed university friends who claims to have special insight into the very positive prospects for those specific stocks. Before investing, Jenny wants to assess the historical performance of those stocks. Jenny's university friend offers to help by using 20 monthly observations and ordinary least squares, to estimate the following regression model: perft = a + (rm -rft) + where Ipt is the return on the portfolio of the specific stocks, I'mt is the return on a broad index of stocks, and rft is the return on a safe government loan with a month maturity. Relevant regression results are summarised below. Coefficient Estimate Standard error 0.23 0.17 alpha beta 0.80 0.04 A) Conduct a formal hypothesis test that the slope coefficient equals 1. [7 points) 1. State the null hypothesis and the alternative hypothesis. 2. State the level of significance for the hypothesis test. 3. Specify the formula for the test statistic that will be used to conduct the hypothesis test. 4. Specify the distribution of the test statistic and explain your choice. 5. Using an appropriate diagram specify the decision rule. 6. State the value of the test statistic, based upon the regression results. 7. Set out the conclusion of the hypothesis test, being explicit about the conclusion and its interpretation in terms of the Capital Asset Pricing Model (CAPM). B) Conduct a formal hypothesis test for positive excess returns on the portfolio, above and beyond those explained by exposure to market risk. [7 points) 1. State the null hypothesis and the alternative hypothesis. 2. State the level of significance for the hypothesis test. 3. Specify the formula for the test statistic that will be used to conduct the hypothesis test. 4. Specify the distribution of the test statistic and explain your choice. 5 Icing an 0.23 0.17 alpha beta 0.80 0.04 A) Conduct a formal hypothesis test that the slope coefficient equals 1. [7 points] 1. State the null hypothesis and the alternative hypothesis. 2. State the level of significance for the hypothesis test. 3. Specify the formula for the test statistic that will be used to conduct the hypothesis test. 4. Specify the distribution of the test statistic and explain your choice. 5. Using an appropriate diagram specify the decision rule. 6. State the value of the test statistic, based upon the regression results. 7. Set out the conclusion of the hypothesis test, being explicit about the conclusion and its interpretation in terms of the Capital Asset Pricing Model (CAPM). B) Conduct a formal hypothesis test for positive excess returns on the portfolio, above and beyond those explained by exposure to market risk. (7 points) 1. State the null hypothesis and the alternative hypothesis. 2. State the level of significance for the hypothesis test. 3. Specify the formula for the test statistic that will be used to conduct the hypothesis test. 4. Specify the distribution of the test statistic and explain your choice. 5. Using an appropriate diagram specify the decision rule. 6. State the value of the test statistic, based upon the regression results. 7. Set out the conclusion of the hypothesis test, being explicit about the conclusion and the availability of evidence to support the view that there have been positive excess returns on the portfolio, above and beyond those explained by exposure to market risk. C) How relevant are the findings from the hypothesis tests to the question of whether the investment advice should be acted upon? [2 points) D) In light of what you know about the history of CAPM testing, do the results of the hypothesis test have implications for the CAPM? [3 points) Upload Choose a File ID 20 pts Jenny is interested in purchasing a portfolio of stocks based upon advice from one of her usually well-informed university friends who claims to have special insight into the very positive prospects for those specific stocks. Before investing, Jenny wants to assess the historical performance of those stocks. Jenny's university friend offers to help by using 20 monthly observations and ordinary least squares, to estimate the following regression model: perft = a + (rm -rft) + where Ipt is the return on the portfolio of the specific stocks, I'mt is the return on a broad index of stocks, and rft is the return on a safe government loan with a month maturity. Relevant regression results are summarised below. Coefficient Estimate Standard error 0.23 0.17 alpha beta 0.80 0.04 A) Conduct a formal hypothesis test that the slope coefficient equals 1. [7 points) 1. State the null hypothesis and the alternative hypothesis. 2. State the level of significance for the hypothesis test. 3. Specify the formula for the test statistic that will be used to conduct the hypothesis test. 4. Specify the distribution of the test statistic and explain your choice. 5. Using an appropriate diagram specify the decision rule. 6. State the value of the test statistic, based upon the regression results. 7. Set out the conclusion of the hypothesis test, being explicit about the conclusion and its interpretation in terms of the Capital Asset Pricing Model (CAPM). B) Conduct a formal hypothesis test for positive excess returns on the portfolio, above and beyond those explained by exposure to market risk. [7 points) 1. State the null hypothesis and the alternative hypothesis. 2. State the level of significance for the hypothesis test. 3. Specify the formula for the test statistic that will be used to conduct the hypothesis test. 4. Specify the distribution of the test statistic and explain your choice. 5 Icing an 0.23 0.17 alpha beta 0.80 0.04 A) Conduct a formal hypothesis test that the slope coefficient equals 1. [7 points] 1. State the null hypothesis and the alternative hypothesis. 2. State the level of significance for the hypothesis test. 3. Specify the formula for the test statistic that will be used to conduct the hypothesis test. 4. Specify the distribution of the test statistic and explain your choice. 5. Using an appropriate diagram specify the decision rule. 6. State the value of the test statistic, based upon the regression results. 7. Set out the conclusion of the hypothesis test, being explicit about the conclusion and its interpretation in terms of the Capital Asset Pricing Model (CAPM). B) Conduct a formal hypothesis test for positive excess returns on the portfolio, above and beyond those explained by exposure to market risk. (7 points) 1. State the null hypothesis and the alternative hypothesis. 2. State the level of significance for the hypothesis test. 3. Specify the formula for the test statistic that will be used to conduct the hypothesis test. 4. Specify the distribution of the test statistic and explain your choice. 5. Using an appropriate diagram specify the decision rule. 6. State the value of the test statistic, based upon the regression results. 7. Set out the conclusion of the hypothesis test, being explicit about the conclusion and the availability of evidence to support the view that there have been positive excess returns on the portfolio, above and beyond those explained by exposure to market risk. C) How relevant are the findings from the hypothesis tests to the question of whether the investment advice should be acted upon? [2 points) D) In light of what you know about the history of CAPM testing, do the results of the hypothesis test have implications for the CAPM? [3 points) Upload Choose a File
