Question: Fama and MacBeth (1973) test the CAPM using the following regression equation: Rit = a1t + a2tbi + a3tSei 2 + a4tb i 2 +

Fama and MacBeth (1973) test the CAPM using the following regression equation: Rit = a1t + a2tbi + a3tSei 2 + a4tb i 2 + it In general terms, explain what the terms in the regression mean (i.e., what Fama and Macbeth are testing for) and discuss the results of the study.

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