With many US companies operating globally, the effect of the US dollar's strength on a US company's returns has become an important investment issue. You would like to determine whether changes in the US dollar's value and overall US equity market returns affect an asset's returns. You decide to use the S&P 500 Index to represent the US equity market.
A. Write a multiple regression equation to test whether changes in the value of the dollar and equity market returns affect an asset's returns. Use the notations below.
R it = return on the asset in period t
R Mt = return on the S&P 500 in period t
ΔX t = change in period t in the log of a trade-weighted index of the foreign exchange value of US dollar against the currencies of a broad group of major US trading partners.
B. You estimate the regression for Archer Daniels Midland Company (NYSE: ADM). You regress its monthly returns for the period January 1990 to December 2002 on
S&P 500 Index returns and changes in the log of the trade-weighted exchange value of the US dollar. The table below shows the coefficient estimates and their standard errors.

Determine whether S&P 500 returns affect ADM's returns. Then determine whether changes in the value of the US dollar affect ADM's returns. Use a 0.05 significance level to make your decisions.
C. Based on the estimated coefficient on R Mt, is it correct to say that "for a 1 percentage point increase in the return on the S&P 500 in period t, we expect a 0.5373 percentage point increase in the return on ADM"?

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Coefficient Estimates from Regressing ADM's Returns: Monthly Data, January 1990–December 2002 Coefficient Standard Error Intercept 0.0045 0.0062 RM 0.5373 0.1332 ΔΧ 0.5121 -0.5768 n= 156