Question: Consider the following linear regression model: (Ri - rf) = ai + bi(RMkt - rf) + ei The bi in the regression: A measures the

Consider the following linear regression model: (Ri - rf) = ai

Consider the following linear regression model: (Ri - rf) = ai + bi(RMkt - rf) + ei The bi in the regression: A measures the historical performance of the security relative to the expected return predicted by the SML. (B measures the diversifiable risk in returns. measures the deviation from the best fitting line and is zero on average. D measures the sensitivity of the security to market risk

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