You have just run a regression of monthly returns of American Airlines (AMR) against the S&P 500 over the past five years. You have misplaced some of the output and are trying to derive it from what you have.
a. You know the R2 of the regression is 0.36, and that your stock has a variance of 67%. The market variance is 12%. What is the beta of AMR?
b. You also remember that AMR was not a very good investment during the period of the regression and that it did worse than expected (after adjusting for risk) by 0.39% a month for the five years of the regression. During this period, the average risk-free rate was 4.84%. What was the intercept on the regression?
c. You are comparing AMR to another firm that also has an R2 of 0.48. Will the two firms have the same beta? If not, why not?

  • CreatedApril 15, 2015
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