Question

In: Statistics and Probability

You are interested in testing whether stock volatility, controlling for size and overall market returns, has...

You are interested in testing whether stock volatility, controlling for size and overall market returns, has an impact on returns. You conduct a regression on 89 observations, using monthly returns, specified as follows: Ri = b0 + b1 Volatilityi + b2 Sizei + b3 Rmarket + error Where Volatility is measured as standard deviation of returns in the previous month, Size is the natural log of total assets, in millions, and Rmarket is the contemporaneous market index return.

Your regression results are as follows:

Coefficient Standard error
Incercept 0.23 0.13
Volatility 0.77 0.19
Size 0.57 0.28
R market 0.19 0.19

The regression sum of squares is 0.12 and the residual sum of squares is 1.92.

What is the F statistic for testing whether the three independent variables are jointly statistically related to returns?

(Bonus question: is the regression statistically significant at the 5% level? Use the FDIST function to find the p-value.)

The answer should be 1.77 and the hint professor gave was "Review how to calculate the F statistic for a multiple regression." Please do the problem on excel and show all the steps. Thank you.

Solutions

Expert Solution

The problem is solved in excel and the formula along with explanation of the formula is given

Formulas to be used

correct answer

Formulas used in excel.

(Bonus question: is the regression statistically significant at the 5% level? Use the FDIST function to find the p-value.)

The hypothesis for this is

Ho : All the beta coefficient are equal to zero.

H1: At least one beta coefficient is not equal to zero.

Since pvalue is greater than 0.05, we fail to reject the null hypothesis and conclude that the regression is not statistically significant at the 5% level.


Related Solutions

You consider investing in an emerging market. Its stock market volatility (standard deviation of returns measured...
You consider investing in an emerging market. Its stock market volatility (standard deviation of returns measured in U.S. dollars) is 25%. The volatility of the World index of developed markets is 15%. The correlation between the emerging market and the World index is 0.2. a. What would be the volatility of a portfolio invested 95% in the World index and 5% in this emerging market? b. Compare the result found in the previous question with the volatility of the World...
The market price of Fintech stock has been very volatile and you think this volatility will...
The market price of Fintech stock has been very volatile and you think this volatility will continue for a few weeks. Thus, you decide to purchase a 1-month call option contract with a strike price of $35 and an option price of $1.82. You also purchase a 1-month put option on the stock with a strike price of $35 and an option price of $.91. What will be your total profit or loss on all the transactions related to these...
A stock market investor is interested in determining whether there is a significant difference in the...
A stock market investor is interested in determining whether there is a significant difference in the P/E (price to earnings) ratio for companies from one year to the next. Six companies are randomly selected and their P/E ratios for Year 1 and Year 2 are recorded. Are the P/E ratios for Year 1 greater than for Year 2? Use a 10% level of significance. Company c Year 1 16 29 36 23 12 19 Year 2 13 25 31 20...
A stock market investor is interested in determining whether there is a significant difference in the...
A stock market investor is interested in determining whether there is a significant difference in the P/E (price to earnings) ratio for companies from one year to the next. Six companies are randomly selected and their P/E ratios for Year 1 and Year 2 are recorded. Are the P/E ratios for Year 1 greater than for Year 2? Use a 10% level of significance. Company c Year 1 16 29 36 23 12 19 Year 2 13 25 31 20...
What is the main determinant of the volatility of forward market returns?
What is the main determinant of the volatility of forward market returns?
You are given the following information concerning a stock and the market: Returns Year Market Stock...
You are given the following information concerning a stock and the market: Returns Year Market Stock 2011 14 % 26 % 2012 10 10 2013 20 3 2014 −15 −31 2015 35 16 2016 15 18 a. Calculate the average return and standard deviation for the market and the stock. b. Calculate the correlation between the stock and the market, as well as the stock’s beta.
A psychologist is interested in testing whether there is a difference in the distribution of personality...
A psychologist is interested in testing whether there is a difference in the distribution of personality types for business majors and social science majors. The results of the study are shown in the table below. Conduct a test of homogeneity. Test at a 5% level of significance. Open Conscientious Extrovert Agreeable Neurotic Business 40 52 48 63 56 Social Science 71 74 61 80 63 What is the test statistic? (Round your answer to two decimal places.) Part (f) What...
Suppose Wesley? Publishing's stock has a volatility of 65%?, while Addison? Printing's stock has a volatility...
Suppose Wesley? Publishing's stock has a volatility of 65%?, while Addison? Printing's stock has a volatility of 25%. If the correlation between these stocks is 40%?, what is the volatility of the following portfolios of Addison and? Wesley: a. 100% Addison b. 75% Addison and 25% Wesley c. 50% Addison and 50% Wesley
Assume that a researcher is interested in testing whether there is a significant effect of video...
Assume that a researcher is interested in testing whether there is a significant effect of video game playing on teenagers’ visual-spatial abilities. The researcher randomly selects 4 participants and measures their visual-spatial cognition before and after playing video games for 4 hours a day for a week.*SHOW WORK FOR THIS PROBLEM. a. Use the data in the table below to conduct the appropriate statistical test including all of the necessary steps. Assume α = .10. Participant Xbefore Xafter A 85...
Discuss Apple's (AAPL) beta and relate to the volatility of the stock and its returns over...
Discuss Apple's (AAPL) beta and relate to the volatility of the stock and its returns over a six month period.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT