Question
You collect data (Jan-2005 to Dec-2015) and regress monthly excess returns of an individual stock on monthly excess returns of a market index (S&P500). The
You collect data (Jan-2005 to Dec-2015) and regress monthly excess returns of an individual stock on monthly excess returns of a market index (S&P500). The regression output is as follows (hypothetical):
A | B | C | D | E | F | |
1 | ||||||
2 | Multiple R | 0.5176 | ||||
3 | R-Square | 0.2679 | ||||
4 | Adj. R-Square | 0.24678831 | ||||
5 | Std. Error | 0.07855976 | ||||
6 | Observations | 131 | ||||
7 | ||||||
8 | df | SS | MS | F | Significance | |
9 | Regression | 1 | 0.3354 | 0.3354 | 43.59424012 | 9.5527E-10 |
10 | Residual | 129 | 0.796140932 | 0.0061716 | ||
11 | Total | 130 | 1.252 | |||
12 | ||||||
13 | Coefficients | Std. Error | t Stat | |||
14 | Intercept | 0.01423167 | 0.006914 | 2.05832 | ||
15 | X Variable 1 | 1.207 | 0.163743158 | 7.371 |
Attempt 1/3 for 10 pts.
Part 1
(go to Part 2 to provide the answers)
Suppose CAPM holds true for this individual stock. Infer the following quantities from the regression output:
1) beta of this individual stock;
2) correlation coefficient between monthly excess returns of this individual stock and monthly excess returns of market index;
3) What is the fraction of systematic risk in the total risk of this stock?
4) risk (standard deviation of returns) of this individual stock.
5) risk (standard deviation of returns) of market index;
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