Consider the Capital Asset Pricing Model that relates the excess return of a security to the market portfolio. The relevant data set (CAPM.xls) contains prices of different US stocks, S&P 500 index and the series of the US Treasury bills.

a) Estimate CAPM betas for each of the stock.

b) Examine the sizes and signs of the parameters in the regressions. Do these make sense?

c) Explain which of the stocks would you classify as defensive stocks and which as aggressive?

d)Do you agree that the CAPM provides some reasonable explanation of the variability of the returns to each of the stock?

e) Check if the CAMP model for FORD suffers from heteroscedasticity. Use a formal test to check that.

f) Can you use the standard errors in this regression if residuals are heteroscedastic?

g) For the model estimated in part e) formally test if the residuals are correlated?

h) How would you solve the problem of autocorrelation?

i) Suppose you want to regress GE log returns on FORD and S&P log returns. Would you expect to have multi-collinearity? Check it.