Question: Consider the following linear regression model: The e i in the regression measures the historical performance of the security relative to the expected return predicted

Consider the following linear regression model:

Consider the following linear regression model: The ei in the regression measures

The ei in the regression

measures the historical performance of the security relative to the expected return predicted by the SML.

measures the deviation from the best fitting line and is zero on average.

measures the sensitivity of the security to market risk.

measures the diversifiable risk in returns.

(RI . rp = i+bi(RMkt-rf) + ei

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