Question: Consider the two (excess return) index model regression results for A and B: RA = 1.2% + 1.4RM R-square = 0.65 Residual standard deviation =

Consider the two (excess return) index model regression results for A and B: RA = 1.2% + 1.4RM R-square = 0.65 Residual standard deviation = 12.3% RB = 0.9% + 0.9RM R-square = 0.49 Residual standard deviation = 10.5%

(a) Which stock has more firm-specific risk? (b) Which has greater market risk? (c) For which stock does market movement explain a greater fraction of return variability?

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