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Question 6 When we test CAPM using historical data, a classic test is to regress excess returns of stocks onto the stock betas, using the
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When we test CAPM using historical data, a classic test is to regress excess returns of stocks
onto the stock betas, using the following regression specification across stocks:
where is the average excess return of a security or portfolio, is the estimated
beta of the security or portfolio, is the regression residual, and Alpha and Gamma are
regression coefficients.
Based on the regression, which of the following statements are true if CAPM is true? Select
all two correct statements.
The Alpha is zero
The Alpha is positive
The Gamma is positive
The Gamma is zero
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