In: Finance
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 8%, and the market’s average return was 12%. Performance is measured using an index model regression on excess returns.
Stock A | Stock B | ||||||||||
Index model regression estimates | 1% + 1.2(rM − rf) | 2% + 0.8(rM − rf) | |||||||||
R-square | 0.653 | 0.475 | |||||||||
Residual standard deviation, σ(e) | 11.6% | 20.4% | |||||||||
Standard deviation of excess returns | 22.9% | 27.5% | |||||||||
a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.)
Sharpe ratio: Stock A = Stock B =
Treynor Measure: Stock A = Stock B =