would tend to result in the price impact being the biggest contributor to overall transaction costs when executing a trade. (1 mark) b) Using the data from Problem Set 1 Dataxls, calculate the bidask spread for all stocks in the sample. Use a multiple regression model to identify the variables that can explain the bid ask spread. When running this regression model, your dependent variable should be the bid ask spread and your independent variables should be: share price, market capitalisation, return volatility and turnover. In your word document report the regression output and identify which of these variables are shown to be related to the bidask spread at the 95% confidence level. (2 marks) c) In 300 words or less, discuss whether the significance and direction of the relationships between bidask spread and share price, market capitalisation, return vola'o'lity and turnover are consistent with prior evidence, using at least two academic journal articles to support your argument. [2 marks) Question 3 (5 marks) The spreadsheet Problem SetlA Dataxls contains historical data for precious metal prices, 10year government bond yields (annualized) [assumed to be the riskfree rate of interest}, and the aggregate equity market index. All data are in monthly frequency. Your client is interested in investing in the precious metals as they have historically been considered as safehavenfhedge against equity market volatility. However, he has been warned off by his financial planner. You are asked to compare the historical performance of the precious metals and equity asset class using suitable portfolio performance measures. a) Evaluate the performance of the precious metals using appropriate portfolio performance measures and explain your results. Discuss three problems with the use of the Sharpe ratio to analyse the performance of a stock. [3 marks) b) Financial market commentators often argue that it is unwise to invest in precious metals, as they historically have lower average returns and higher risk compared to equities. In light of this evidence and the results reported in Part a, discuss whether there is any justification for an investor with meanvariance utility preferences to invest in precious metals as opposed to equities. [2 marks)