A mutual fund claims that they have the same risk as the market and generate superior in the form of positive alpha. The following regression of mutual fund's monthly excess return over the risk-free rate on the market excess return is estimated. Standard errors of the coefficient estimates are in parentheses. The sample size used is 60. Perform the requested tests at 5% level of significance. Make sure to state your hypotheses clearly. 

ERMFt = 0.035 + 1.125*ERMKTt 

             (0.025)                  (0.875)

a) Test the hypothesis that the mutual fund is just as risky as the market?

b) Test if the mutual fund has superior performance as claimed by have significant positive alpha?

Answer rating: 100% (QA)

a To test the hypothesis that the mutual fund is just as risky as the market we need to perform a ttest on the coefficient of the market excess return ... View the full answer