Suppose that you had estimated the following market model on an asset: rt = + rmt + t, (1) where rt is the (simple) return at time t, rmt is the return on a proxy for the market portfolio at time t, and t is the error term.

- The coefficient measures the systematic risk of this asset. You found that the estimated beta was 0.18 with a standard error 0.32.

- A city analyst has told you that this asset has a return strictly less risky than the market portfolio. The model is estimated over 62 daily observations.

(a) Write out the null and alternative hypotheses of the test

(b) Test this hypothesis at the 5% level. (Hint: t5%,60 = 1.671)

(c) What is your conclusion?