Why Gold is Special. The purpose of this exercise is to acquaint you with features of a rather remarkable asset whose peculiar covariance of returns with the market as a whole often makes it attractive to investors. You are going to use the variables GOLD, MARKET76 and RKFREE76 for the period jan-76/dec-85. They are monthly returns for the asset gold, for the whole stockmarket and for the risk-free asset. a) Using the jan-76/dec-79 four-year time period and the CAPM, generate variables measuring the GOLD-specific and MARKET risk premia, and then estimate the Beta for GOLD. Compute a 95% confidence interval for BETA. Do your estimates make sense? Why might such an asset be particularly desirable to an investor who is attempting to reduce risk through diversification? What does this imply concerning the expected return of such an asset? b) Now estimate the Beta for GOLD using dat from jan-80/dec-85. Construct a 95% confidence interval for Beta. Has anything changed? Comment on supply and demand factors possibly alterating the Beta of gold.

date	gold	market76	rkfree76
1-Jan-76	-0.10386	0.156	0.00369
1-Feb-76	0.05101	0.069	0.00369
1-Mar-76	0.01071	0.01	0.0039
1-Apr-76	-0.03494	-0.012	0.00383
1-May-76	-0.00771	0.005	0.00415
1-Jun-76	-0.00965	0.016	0.00431
1-Jul-76	-0.06505	-0.017	0.00416
1-Aug-76	-0.06703	-0.016	0.00389
1-Sep-76	0.04142	0.007	0.00412
1-Oct-76	0.01736	-0.029	0.00386
1-Nov-76	0.12637	0	0.00355
1-Dec-76	0.02306	0.111	0.00345
1-Jan-77	-0.01109	0.015	0.00372
1-Feb-77	0.02874	-0.012	0.00362
1-Mar-77	0.08703	0.008	0.00367
1-Apr-77	0.007	0.004	0.00359
1-May-77	-0.01637	-0.005	0.00394
1-Jun-77	-0.04394	0.07	0.004
1-Jul-77	0.04845	-0.002	0.00435
1-Aug-77	-0.01301	-0.023	0.00445
1-Sep-77	0.03048	0.008	0.00476
1-Oct-77	0.06156	-0.051	0.00473
1-Nov-77	-0.02912	0.083	0.0045
1-Dec-77	0.04163	0.039	0.00467
1-Jan-78	0.07788	-0.045	0.00487
1-Feb-78	0.02821	0.01	0.00494
1-Mar-78	0.03057	0.05	0.00526
1-Apr-78	-0.04548	0.063	0.00491
1-May-78	0.0045	0.067	0.00513
1-Jun-78	0.04295	0.007	0.00527
1-Jul-78	0.02814	0.071	0.00528
1-Aug-78	0.09005	0.079	0.00607
1-Sep-78	0.02977	0.002	0.00645
1-Oct-78	0.07194	-0.189	0.00685
1-Nov-78	-0.09443	0.084	0.00719
1-Dec-78	0.00941	0.015	0.0069
1-Jan-79	0.09336	0.058	0.00761
1-Feb-79	0.08042	0.011	0.00761
1-Mar-79	-0.01428	0.123	0.00769
1-Apr-79	-0.01333	0.026	0.00764
1-May-79	0.07745	0.014	0.00772
1-Jun-79	0.08434	0.075	0.00715
1-Jul-79	0.05802	-0.013	0.00728
1-Aug-79	0.02064	0.095	0.00789
1-Sep-79	0.18394	0.039	0.00802
1-Oct-79	0.09749	-0.097	0.00913
1-Nov-79	0.00163	0.116	0.00819
1-Dec-79	0.16912	0.086	0.00747
1-Jan-80	0.47437	0.124	0.00883
1-Feb-80	-0.01418	0.112	0.01073
1-Mar-80	-0.1682	-0.243	0.01181
1-Apr-80	-0.06696	0.08	0.00753
1-May-80	-0.0074	0.062	0.0063
1-Jun-80	0.16878	0.086	0.00503
1-Jul-80	0.07083	0.065	0.00602
1-Aug-80	-0.02459	0.025	0.00731
1-Sep-80	0.07699	0.015	0.0086
1-Oct-80	-0.02162	0.006	0.00895
1-Nov-80	-0.05855	0.092	0.01137
1-Dec-80	-0.04421	-0.056	0.00977
1-Jan-81	-0.06308	-0.014	0.01092
1-Feb-81	-0.1025	-0.009	0.01096
1-Mar-81	-0.003	0.067	0.01025
1-Apr-81	-0.00774	-0.008	0.01084
1-May-81	-0.03053	0.064	0.01255
1-Jun-81	-0.03966	-0.003	0.01128
1-Jul-81	-0.1126	-0.033	0.01154
1-Aug-81	0.00494	-0.031	0.01169
1-Sep-81	0.0808	-0.164	0.01054
1-Oct-81	-0.0143	0.062	0.01003
1-Nov-81	-0.05686	0.069	0.00816
1-Dec-81	-0.00855	-0.039	0.0074
1-Jan-82	-0.06156	-0.079	0.00949
1-Feb-82	-0.02619	-0.101	0.00946
1-Mar-82	-0.11714	-0.028	0.01067
1-Apr-82	0.06141	0.041	0.00972
1-May-82	-0.0461	0.003	0.00908
1-Jun-82	-0.05799	-0.078	0.00914
1-Jul-82	0.07975	-0.006	0.00714
1-Aug-82	0.07607	0.122	0.00503
1-Sep-82	0.19015	0.008	0.00563
1-Oct-82	-0.03079	0.136	0.0062
1-Nov-82	-0.01897	0.049	0.00614
1-Dec-82	0.07367	0.014	0.00648
1-Jan-83	0.07919	0.065	0.00646
1-Feb-83	0.02199	0.028	0.00599
1-Mar-83	-0.14419	0.043	0.00686
1-Apr-83	0.02952	0.097	0.00652
1-May-83	0.01291	0.08	0.00649
1-Jun-83	-0.05673	0.048	0.00673
1-Jul-83	0.0256	-0.017	0.00714
1-Aug-83	-0.01686	-0.034	0.00668
1-Sep-83	-0.01158	0	0.00702
1-Oct-83	-0.04246	-0.082	0.00678
1-Nov-83	-0.02957	0.066	0.00683
1-Dec-83	0.01488	-0.012	0.00693
1-Jan-84	-0.04322	-0.029	0.00712
1-Feb-84	0.04059	-0.03	0.00672
1-Mar-84	0.02159	0.003	0.00763
1-Apr-84	-0.03213	-0.003	0.00741
1-May-84	-0.01126	-0.058	0.00627
1-Jun-84	0.00103	0.005	0.00748
1-Jul-84	-0.08266	-0.058	0.00771
1-Aug-84	0.0036	0.146	0.00852
1-Sep-84	-0.01942	0	0.0083
1-Oct-84	-0.00217	-0.035	0.00688
1-Nov-84	0.00285	-0.019	0.00602
1-Dec-84	-0.06479	-0.001	0.00612
1-Jan-85	-0.06265	0.097	0.00606
1-Feb-85	0.0172	0.012	0.00586
1-Mar-85	-0.044	0.008	0.0065
1-Apr-85	0.13447	-0.01	0.00601
1-May-85	-0.02165	0.019	0.00512
1-Jun-85	-0.01393	-0.003	0.00536
1-Jul-85	-0.00816	0.012	0.00562
1-Aug-85	0.03275	0.005	0.00545
1-Sep-85	-0.0144	-0.055	0.00571
1-Oct-85	0.01663	0.026	0.00577
1-Nov-85	-0.00413	0.059	0.0054
1-Dec-85	-0.02318	0.013	0.00479
.