The single-index model (SIM) is possibly the simplest asset pricing model that we use in finance to measure the tradeoff between the systematic risk and return of a stock. Mathematically the SIM could be expressed as

rit rf = i + i(rmt rf ) + it,

where rit is the (simple) return for security i at time t, rmt is the market return at time t, rf is the risk-free rate, and it is the error term. The coefficient i measures the systematic risk that firm i is facing.

Using the data , please estimate i and i via OLS regression in Excel. (Note: Please crop the Excel regression output and paste it below.)

(b) Explain the estimated i in words.

\begin{tabular}{|c|c|c|c|c|} \hline 1 & date & If & rm & ri \\ \hline 2 & Jan-08 & 0.0326 & -0.0609 & -0.0843 \\ \hline 3 & Feb-08 & 0.0210 & -0.0349 & -0.1656 \\ \hline 4 & Mar-08 & 0.0170 & -0.0030 & 0.0434 \\ \hline 5 & Apr-08 & 0.0140 & 0.0449 & 0.0049 \\ \hline 6 & May-08 & 0.0145 & 0.0098 & -0.0070 \\ \hline 7 & Jun-08 & 0.0185 & -0.0878 & -0.0286 \\ \hline 8 & & 0.0187 & -0.0057 & -0.0651 \\ \hline 9 & Aug-08 & 0.0166 & 0.0145 & 0.0610 \\ \hline 10 & Sep-08 & 0.0172 & -0.0960 & -0.0220 \\ \hline 11 & Det-08 & 0.0085 & -0.1679 & -0.1634 \\ \hline 12 & Nov-08 & 0.0049 & -0.0826 & -0.0945 \\ \hline 13 & Dec-08 & 0.0007 & 0.0162 & -0.0386 \\ \hline 14 & Jan-09 & 0.0008 & -0.0885 & -0.1204 \\ \hline 15 & Feb-09 & 0.0027 & -0.1136 & -0.0556 \\ \hline 16 & Mar-09 & 0.0028 & 0.0878 & 0.1375 \\ \hline 17 & Apr-09 & 0.0022 & 0.0997 & 0.1029 \\ \hline 18 & May-09 & 0.0016 & 0.0579 & 0.0311 \\ \hline 19 & Ju-09 & 0.0013 & -0.0026 & 0.1379 \\ \hline 20 & Jul-09 & 0.0017 & 0.0754 & -0.0105 \\ \hline 21 & Aug-09 & 0.0019 & 0.0296 & 0.0480 \\ \hline 22 & Sep-09 & 0.0014 & 0.0347 & 0.0434 \\ \hline 23 & Det-09 & 0.0010 & -0.0178 & 0.0781 \\ \hline 24 & Nov-09 & 0.0006 & 0.0605 & 0.0606 \\ \hline 25 & Dec-09 & 0.0006 & 0.0161 & 0.0364 \\ \hline 26 & Jan10 & 0.0008 & -0.0382 & -0.0755 \\ \hline 27 & Feb-10 & 0.0010 & 0.0293 & 0.0174 \\ \hline 28 & Mar-10 & 0.0013 & 0.0596 & 0.0216 \\ \hline 29 & Apr-10 & 0.0016 & 0.0148 & 0.0427 \\ \hline 30 & May-10 & 0.0017 & -0.0852 & -0.1552 \\ \hline 31 & Jun-10 & 0.0016 & -0.0517 & -0.1081 \\ \hline 32 & Jul-10 & 0.0017 & 0.0741 & 0.1217 \\ \hline 33 & Aug-10 & 0.0016 & -0.0522 & -0.0907 \\ \hline 34 & Sep-10 & 0.0013 & 0.0893 & 0.0435 \\ \hline 35 & Det-10 & 0.0016 & 0.0369 & 0.0890 \\ \hline 36 & Nou-10 & 0.0013 & 0.0008 & -0.0529 \\ \hline 37 & Dec-10 & 0.0016 & 0.0599 & 0.1049 \\ \hline 38 & Jan11 & 0.0015 & 0.0251 & -0.0064 \\ \hline 39 & Feb-11 & 0.0015 & 0.0306 & -0.0415 \\ \hline 40 & Mar-11 & 0.0014 & 0.0006 & -0.0448 \\ \hline 41 & Apr-11 & 0.0007 & 0.0269 & 0.0209 \\ \hline 42 & May-11 & 0.0005 & -0.0147 & -0.0351 \\ \hline 43 & Jun-11 & 0.0005 & -0.0183 & 0.0396 \\ \hline 44 & Jul-11 & 0.0002 & -0.0212 & 0.0538 \\ \hline 45 & Aug-11 & 0.0010 & -0.0568 & -0.0292 \\ \hline 46 & Sep-11 & 0.0002 & -0.0721 & -0.0643 \\ \hline 47 & Det-11 & 0.0002 & 0.1059 & 0.0699 \\ \hline 48 & Nou-11 & 0.0001 & -0.0033 & -0.0394 \\ \hline 49 & Dec-11 & 0.0001 & 0.0096 & 0.0149 \\ \hline 50 & Jan12 & 0.0002 & 0.0426 & 0.1375 \\ \hline 51 & Feb-12 & 0.0006 & 0.0407 & 0.0748 \\ \hline 52 & Mar-12 & 0.0008 & 0.0312 & 0.0164 \\ \hline 53 & Apr-12 & 0.0008 & -0.0075 & -0.0074 \\ \hline 54 & May-12 & 0.0009 & -0.0629 & -0.0884 \\ \hline 55 & Jun-12 & 0.0007 & 0.0400 & 0.0480 \\ \hline 56 & Jul-12 & 0.0010 & 0.0125 & -0.0366 \\ \hline 57 & Aug-12 & 0.0010 & 0.0197 & 0.0458 \\ \hline 58 & Sep-12 & 0.0010 & 0.0244 & -0.0344 \\ \hline 59 & 0et-12 & 0.0009 & -0.0199 & -0.0410 \\ \hline 60 & Nou-12 & 0.0009 & 0.0029 & -0.0673 \\ \hline 61 & Dec-12 & 0.0010 & 0.0070 & 0.0034 \\ \hline \end{tabular}