Run an “empirical” CAPM regression to estimate beta for each company and report your estimates

2. Run a market model regression to estimate beta for each company and report your estimates

3. Compare the two estimates for each company and explain why they differ or not
4. Which company has a higher beta? Why do you think this is the case? Briefly explain.
5. Interpret the intercept parameter for each firm.
6. Interpret the R² from the CAPM regression for both firms

Note: You can find the The Beta estimation excel table below contains the following info:

Market risk premium and risk-free rate Monthly returns for two firms, Company X and Company Y. Monthly returns are

computed from monthly adjusted prices.

Market and risk-free (FF site)			Company X			Company Y
Date	Mkt-RF	RF	Date	Adj Close	Return	Date	Adj Close	Return
201605			5/1/2016	39,622,597		5/1/2016	722,789,978
201606	-0.05	0.02	6/1/2016	33,320,332	-15.9057343	6/1/2016	715,619,995	-0.9919871
201607	3.95	0.02	7/1/2016	35,442,291	6.368360915	7/1/2016	758,809,998	6.03532647
201608	0.5	0.02	8/1/2016	33,613,014	-5.161283169	8/1/2016	769,159,973	1.36397452
201609	0.25	0.02	9/1/2016	36,198,021	7.690494521	9/1/2016	837,309,998	8.86031871
201610	-2.02	0.02	10/1/2016	38,414,421	6.122986668	10/1/2016	789,820,007	-5.6717334
201611	4.86	0.01	11/1/2016	44,309,471	15.34592959	11/1/2016	750,570,007	-4.9694867
201612	1.82	0.03	12/1/2016	45,447,014	2.567268293	12/1/2016	749,869,995	-0.0932641
201701	1.94	0.04	1/1/2017	43,645,393	-3.96422304	1/1/2017	823,479,980	9.81636624

 
 

Transcribed Image Text:

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Answer rating: 100% (QA)

Answer While the CAPM offers simple and intuitive explanation for the relationship between return and risk the empirical record of the prediction made ... View the full answer