It is proved that OLS estimation of the market model is the empirical counterpart of the CAPM
Question:
It is proved that OLS estimation of the market model is the empirical counterpart of the CAPM under classical Gauss–Markov assumptions. Show that: (i) E(ui t ) = 0, (ii) Var (uit ) = σ2i (1 − ρ2iM) ≡ σ2ui is constant, and (iii) Cov (uit , uis ) = 0 for all t ≠ s.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 100% (QA)
Answered By
Ajeet Singh
Hi there! Are you looking for a committed, reliable, and enthusiastic tutor? Well, teaching and learning are more of a second nature to me, having been raised by parents who are both teachers. I have done plenty of studying and lots of learning on many exciting and challenging topics. All these experiences have influenced my decision to take on the teaching role in various capacities. As a tutor, I am looking forward to getting to understand your needs and helping you achieve your academic goals. I'm highly flexible and contactable. I am available to work on short notice since I only prefer to work with very small and select groups of students. Areas of interest: Business, accounting, Project management, sociology, technology, computers, English, linguistics, media, philosophy, political science, statistics, data science, Excel, psychology, art, history, health education, gender studies, cultural studies, ethics, religion. I am also decent with math(s) & Programming. If you have a project you think I can take on, please feel welcome to invite me, and I'm going to check it out!
5.00+
4+ Reviews
24+ Question Solved
Related Book For
Investment Valuation And Asset Pricing Models And Methods
ISBN: 9783031167836
1st Edition
Authors: James W. Kolari, Seppo Pynnönen
Question Posted:
Students also viewed these Business questions
-
mary is itimizing deductions and pays the following amounts for her home during the year 2023, 2600 real state taxes, 6890 mortgage, 1000 home owner insurance premiums, 11200 mortgage insurance...
-
QUIZ... Let D be a poset and let f : D D be a monotone function. (i) Give the definition of the least pre-fixed point, fix (f), of f. Show that fix (f) is a fixed point of f. [5 marks] (ii) Show that...
-
Consider the Markov Chain, Xn, on the states i = 0, 1, 2, . . . with transition matrix given by pi,i1 = p i = 1, 2, . . . pi,i+1 = 1 p i = 0, 1, . . . p0,0 = p where 0 < p < 1. (i) Show that the...
-
Identify 3 ethical and 3 legal issues regarding Genomics ? with examples? Genomic services provided for gaining a better understanding of the interactions between genes and the environment but there...
-
Consider the following simplified balance sheet for a bank: a. If the required reserve ratio is 0.10, or 10 percent, how much in excess reserves does the bank hold? b. What is the maximum amount by...
-
Describe a market power. Assume that for a particular firm's output price = $80, marginal cost = $30, average total cost = $25. What does this information suggest about the market power of the firm?
-
Water flows steadily from a nozzle into a large tank as shown in Fig. P3.120. The water then flows from the tank as a jet of diameter \(d\). Determine the value of \(d\) if the water level in the...
-
1. How can a company make a business case for/against allowing access to an SDK? 2. What are potential pitfalls if established practices (such as the SDLC) are not followed when developing...
-
Matrix a is given by [ 1 1 - 7 - 6 ] find the inverse
-
Figure 12.15 represents the network for delivering coolant to five different machine tools in an automated machining system. The grid is a rectangle 7.5 m by 15 m. All pipes are drawn steel tubing...
-
State whether each of the following statements is true or false. Provide a proof if the statement is true or a counterexample if the statement is false. (a) If \(\widetilde{X}\) is a fair game with...
-
The table below reports event day abnormal returns, standard deviations of the estimation window abnormal returns (i.e., OLS residuals of the market model), and rank number of the event day abnormal...
-
If f(k) = 17, what is the value of |f(k)|?
-
Why do lenders and borrowers often try to avoid foreclosure?
-
Once the relationship between a principal and agent ends, does the agent have the right to bind the principal?
-
An agent must keep separate accounts for the principals funds. (True/False)
-
An agent is always liable for a contract they enter into on behalf of an undisclosed principal. (True/False)
-
A limited liability company offers the limited liability of a corporation and the tax advantages of a partnership. (True/False)
-
Allocation to accomplish smoothing OHara Corporation estimated its overhead costs would be $24,000 per month except for January when it pays the $72,000 annual insurance premium on the manufacturing...
-
Explain the operation of the dividends received deduction.
-
A Treasury bond that settles on October 18, 2016, matures on March 30, 2035. The coupon rate is 5.30 percent and the bond has a 4.45 percent yield to maturity. What are the Macaulay duration and...
-
A bond that settles on June 7, 2016, matures on July 1, 2036, and may be called at any time after July 1, 2026, at a price of 105. The coupon rate on the bond is 6 percent and the price is 115.00....
-
A Treasury bond that settles on August 10, 2016, matures on April 15, 2021. The coupon rate is 4.5 percent and the quoted price is 106:17. What is the bonds yield to maturity?
-
Given what you've learned about interest, how do you feel about saving? What do you see as the benefits of saving? Do you think there are any potential risks to saving?
-
How does our society deal with unlimited wants and scarcities (limited resources)? what are the three solutions to the economic problem? Explain.
-
Gold Nest Company of Guandong, China, makes birdcages for the South China market. The company sells its birdcages through an extensive network of street vendors who receive commissions on their...
Study smarter with the SolutionInn App