Question

In: Statistics and Probability

Use regression analysis to estimate the market model for Company A and Company B, and the equally weighted portfolio.

Use regression analysis to estimate the market model for Company A and Company B, and the equally weighted portfolio.

a. Interpret the regression slope coefficient (beta) in the context of the market model for each of the 3 assets.

b. Interpret the coefficients of determination (R²) in the context of the market model (systematic and nonsystematic risk).

The calculations can be done with Excel’s Data Analysis “Regression” function, clicking on “Line Fit Plots” in the dialogue box to see the fitted line.

			Monthly Stock Returns

	Year	Month	S&P 500 Index	A	B
1	2010	January	0.02851	0.09223	0.02822
2	2010	February	0.05880	0.10163	(0.00017)
3	2010	March	0.01476	0.09005	(0.01001)
4	2010	April	(0.08198)	(0.10765)	(0.01726)
5	2010	May	(0.05388)	(0.01133)	(0.01810)
6	2010	June	0.06878	0.16893	0.02765
7	2010	July	(0.04745)	(0.06577)	(0.02444)
8	2010	August	0.08755	0.20749	0.00505
9	2010	September	0.03686	0.00441	0.06815
10	2010	October	(0.00229)	0.07642	(0.03929)
11	2010	November	0.06530	0.10699	0.05330
12	2010	December	0.02265	0.04067	(0.01128)
13	2011	January	0.03196	0.06098	(0.00134)
14	2011	February	(0.00105)	0.08187	(0.02302)
15	2011	March	0.02850	0.04078	0.06244
16	2011	April	(0.01350)	(0.08331)	0.03238
17	2011	May	(0.01826)	0.00627	(0.05128)
18	2011	June	(0.02147)	(0.06810)	(0.02479)
19	2011	July	(0.05679)	(0.07893)	0.03559
20	2011	August	(0.07176)	(0.18854)	(0.00786)
21	2011	September	0.10772	0.28633	0.02112
22	2011	October	(0.00506)	0.03621	0.00905
23	2011	November	0.00853	(0.07440)	0.03314
24	2011	December	0.04358	0.20986	(0.04742)
25	2012	January	0.04059	0.04667	0.07256
26	2012	February	0.03133	(0.06733)	(0.00607)
27	2012	March	(0.00750)	(0.03120)	(0.04502)
28	2012	April	(0.06265)	(0.14734)	(0.02125)
29	2012	May	0.03955	(0.03103)	(0.01665)
30	2012	June	0.01260	(0.00180)	0.06276
31	2012	July	0.01976	0.01322	0.04109
32	2012	August	0.02424	0.00830	0.03241
33	2012	September	(0.01979)	(0.00835)	0.00640
34	2012	October	0.00285	0.00510	0.00852
35	2012	November	0.00707	0.05735	(0.02778)
36	2012	December	0.02171	0.04899	0.00913

Expert Solution

FOR COMAPANY A

a. Interpret the regression slope coefficient (beta) in the context of the market model for each of the 3 assets.

Slope is 1.87624552

So if S&P 500 index increses to 1 unit then response variable will inrecreses into 1.8762 unit .

b. Interpret the coefficients of determination (R2) in the context of the market model (systematic and nonsystematic risk).

Coefficient of determination = 0.67

that means 67% variation explained by responce variable to the regressior S&P 500 index .

Best fit line plot

FOR COMPANY B

a. Interpret the regression slope coefficient (beta) in the context of the market model for each of the 3 assets.

Slope is 0.2722

So if S&P 500 index increses to 1 unit then response variable will inrecreses into 0.2722 unit .

b. Interpret the coefficients of determination (R2) in the context of the market model (systematic and nonsystematic risk).

Coefficient of determination = 0.1224

that means 12.24% variation explained by responce variable to the regressior S&P 500 index .

Best fit line plot

orchestra answered 1 year ago

You have combined two stocks, A and B, into an equally weighted portfolio (Stable) and it...

You have combined two stocks, A and B, into an equally weighted portfolio (Stable) and it has a variance of 35%. The covariance between A and B is 25%. A is a resource stock and has a variance twice that of B. You have formed another portfolio (Growth) that has an expected return of 17% and a variance of 50%. The expected return on the market is 15% and the risk free rate is 7% Covariance (A,Market) = 22% and...

In the APT model, what is the nonsystematic standard deviation of an equally-weighted, well diversified portfolio...

In the APT model, what is the nonsystematic standard deviation of an equally-weighted, well diversified portfolio of 170 securities that has an average value (across securities) of nonsystematic standard deviation, σ(ei), equal to 22%? (Round your answer to 2 decimal places.)

You will need to use Excel Regression Data Analysis to estimate the following linear model of...

You will need to use Excel Regression Data Analysis to estimate the following linear model of Texas Natural Gas Utility Residential Demand: (1) QRES = α + β1*PRES + β2*RES + β3*INCOME where QRES = Quantity demand (mcfs) of residential customers PRES = Price per mcf, RES = number of residential customers, INCOME = per capita income, The data below are actual publicly available residential demand data for city/town natural gas distribution utilities in Texas. You can copy and paste...

What is the standard deviation of returns of an equally weighted portfolio made up of Security A and Security B?

Security Return(S1) Return(S2) A 16% 20% B 12% 25% Risk-free asset return = 4%; S1 is State-1 and S2 is State-2; Prob(S1) = 0.6; Prob(S2) = 0.4What is the standard deviation of returns of an equally weighted portfolio made up of Security A and Security B?

What is the expected return on an equally weighted portfolio of these three stocks?

Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Stock C Boom 0.74 0.23 0.25 0.17 Bust 0.26 0.11 0.15 0.11 Requirement 1: What is the expected return on an equally weighted portfolio of these three stocks? (Do not round your intermediate calculations.) (Click to select)19.24%21.74%31.27%34.04%13.51% Requirement 2: What is the variance of a portfolio invested 10 percent each in A and B and 80 percent in...

Problem 2 (25 %) Use multiple regression to estimate a model for the share of the...

Problem 2 (25 %) Use multiple regression to estimate a model for the share of the shadow economy of the form: SHADOWi = β0 + β1INCOMEi + β2UNABLEi + εi i = 1, …, 28 List the assumptions for the regression model, and explain the output provided by Excel. Provide a nice and easy to read output.  How is the R2 and the standard error calculated what is the interpretation?  What signs are found for the estimated coefficients...

how you calculate the Portfolio (equally weighted of 3 companies) to find their data will be...

how you calculate the Portfolio (equally weighted of 3 companies) to find their data will be in 60 observation monthly( 5 years) Beta Monthly Er Annual Er EAR STDV Monthly/Annual Sharpe Monthly Sharpe Er Sharpe EAR

Use Excel to estimate a simple linear regression model for the following data (Y is a...

Use Excel to estimate a simple linear regression model for the following data (Y is a dependent variable and X is an independent variable): Y X 0 -2 0 -1 1 0 1 1 3 2 Fill in Multiple Blanks: What is the slope of the estimated line? In your answer, show one (1) digit to the right of the decimal point, for example, 1.0, 1.2. Apply the appropriate rounding rule if necessary. What is the Y-intercept?

and compare different weighting methods used in index construction (price weighted, market value weighted, equally weighted)...

and compare different weighting methods used in index construction (price weighted, market value weighted, equally weighted) why equally weighted index require frequent rebalancing?

In a simple linear regression analysis, will the estimate of the regression line be the same...

In a simple linear regression analysis, will the estimate of the regression line be the same if you exchange X and Y? Why or why not?