Caterpillar, Inc., manufactures and sells heavy construction equipment worldwide. The performance of Caterpillar’s stock is likely to be strongly influenced by the economy. For example, during the Great Recession, the value of Caterpillar’s stock plunged dramatically. Monthly data for Caterpillar’s risk-adjusted return (R − R_f) and the risk-adjusted market return (R_M − R_f) are collected for a five-year period (n = 60). A portion of the data is shown in the accompanying table

a. Estimate the CAPM model for Caterpillar, Inc. Show the regression results in a well-formatted table. 

b. At the 5% significance level, determine if investment in Caterpillar is riskier than the market (beta significantly greater than 1). 

c. At the 5% significance level, is there evidence of abnormal returns?  

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Month Year Jan 2012 Feb 2012 ⠀ # Dec 2016 R-R₁ 0.051024 -0.068230 ⠀ 0.026386 RM -R₁ 0.040289 0.030432 ⠀ 0.012784