This data table tracks monthly performance of stock in Apple Computer since 1990. The data include 264 monthly returns on Apple Computer, as well as returns on the entire stock market, Treasury Bills (short-term, 30-day loans to the government), and infation. (The column Market Return is the return on a value-weighted portfolio that purchases stock in proportion to the size of the company rather than one of each stock.) Formulate the model with Apple Return as the response and Market Return and IBM Return as explanatory variables.
(a) Examine scatterplots of the response versus the two explanatory variables as well as the scatterplot between the explanatory variables. Do you notice any unusual features in the data? Do the relevant plots appear straight enough for multiple regression?
(b) Fit the indicated multiple regression and show a summary of the estimated features of the model.
(c) Does the estimated model appear to meet the conditions for the use of the MRM?
(d) The simple regression of the stock returns of Apple on the returns of the whole stock market estimates beta for Apple to be about 1.3. Does the multiple regression suggest a different estimate?
(e) Give a confidence interval for the slope of IBM Return and carefully interpret this estimate.
(f) Does the addition of IBM Return improve the fit of the model with just Market Return by a statistically significant amount?