Suppose we are interested in testing whether is equal to 1. Then we would test H

Suppose we are interested in testing whether β is equal to 1. Then we would test H₀: β = 1 against H₁: β ≠ 1. Using the model given in question 23, test this hypothesis.

Question 23

In finance, we are often interested in how the return of one stock is related to some market index such as the NYSE. The model we usually estimate to understand this relationship is known as the market model and is given by the equation

Transcribed Image Text:

Rjt = aj + BjRm,t +ejt