In order to estimate the market risk for Google, I have estimated the following market model,...

 

Transcribed Image Text:

In order to estimate the market risk for Google, I have estimated the following market model, n=a+ßr₂+ & where , is Google's monthly return and is the monthly market return. Let X - [17]. and Y=[r] be matrix and vector of monthly returns, with the following information: first row of X'X matrix is [60 3], first row of X'Y matrix is [6], and Y'Y is 2.5. In the following table, I report the OLS estimates for the whole sample. (TSS: total sum of square: RSS: residual sum of square) Model: Variable a B R² TSS RSS # of obs. n Unconstrained Model Std (5₂) 0.02 7 Coefficient 0.042 1.2 ? ? 1.14 ? t-ratio ? 6.0 Constrained Model (a = 0) Coefficient Std. Error 1.33 1.2 0.08 [4 points] How many observations are? What is the average monthly market return? (2) [3 points] Test the hypothesis Ho: a = 0. What is the standard error for the estimator? (3) [5 points] Find TSS and R². [hint: TSS-Y'Y-n (mean of Y)'] (4) [4 points] Impose the constraint of a = 0 and re-estimate the pusing OLS. Using the F test to see if a = 0? In order to estimate the market risk for Google, I have estimated the following market model, n=a+ßr₂+ & where , is Google's monthly return and is the monthly market return. Let X - [17]. and Y=[r] be matrix and vector of monthly returns, with the following information: first row of X'X matrix is [60 3], first row of X'Y matrix is [6], and Y'Y is 2.5. In the following table, I report the OLS estimates for the whole sample. (TSS: total sum of square: RSS: residual sum of square) Model: Variable a B R² TSS RSS # of obs. n Unconstrained Model Std (5₂) 0.02 7 Coefficient 0.042 1.2 ? ? 1.14 ? t-ratio ? 6.0 Constrained Model (a = 0) Coefficient Std. Error 1.33 1.2 0.08 [4 points] How many observations are? What is the average monthly market return? (2) [3 points] Test the hypothesis Ho: a = 0. What is the standard error for the estimator? (3) [5 points] Find TSS and R². [hint: TSS-Y'Y-n (mean of Y)'] (4) [4 points] Impose the constraint of a = 0 and re-estimate the pusing OLS. Using the F test to see if a = 0?

Answer rating: 100% (QA)

Number of observations n This can be found from the bottom of the table where it shows n 20 Average monthly market return Steps involved Calculate the tstatistic for the coefficient using the formulat ... View the full answer