By estimating with the ordinary least squares (OLS) on an Index Model the following equations describe...

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By estimating with the ordinary least squares (OLS) on an Index Model the following equations describe excess return for securities A and B. For security A: RA=1%+1,2RM r'=0,576 Residual standard deviation = 10,3% For security B: Re=-2%+0,8RM r=0,436 Residual standard deviation = 9,1% a) Which security has more firm specific risk? b) Which security has more market risk? c) For which security does market fluctuations result in more of the fiuctuations in returns? d) If the risk-free rate, r, are 6% and the regression analysis had been performed using total return and not excess return, what would the regression constant be for security A? By estimating with the ordinary least squares (OLS) on an Index Model the following equations describe excess return for securities A and B. For security A: RA=1%+1,2RM r'=0,576 Residual standard deviation = 10,3% For security B: Re=-2%+0,8RM r=0,436 Residual standard deviation = 9,1% a) Which security has more firm specific risk? b) Which security has more market risk? c) For which security does market fluctuations result in more of the fiuctuations in returns? d) If the risk-free rate, r, are 6% and the regression analysis had been performed using total return and not excess return, what would the regression constant be for security A?

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Answer a Stock A Residual standard deviation is high... View the full answer