Month	Cat_Adj	Market_Adj
1	17.66	2.21
2	7.27	-0.31
3	-2.1	0.74
4	5.42	0.84
5	-4.07	-3.48
6	1.72	-0.38
7	-4.83	0.11
8	-6.8	1.71
9	-1.22	2.07
10	-7.74	2.75
11	1.74	1.22
12	-1.52	0.86
13	4.6	1
14	0.14	-2.61
15	3.61	0.57
16	8.41	3.92
17	7.81	2.86
18	-0.72	-2.15
19	0.66	-3.59
20	-4.19	0.94
21	3.2	3.27
22	-4.74	1.17
23	-3.93	-4.71
24	0.67	-1.1
25	-1.84	-6.34
26	1.7	-3.66
27	8.13	-0.71
28	4.98	4.67
29	0.79	0.92
30	-10.82	-8.74
31	-5.39	-1.12
32	1.6	1.08
33	-15.81	-9.15
34	-35.28	-16.97
35	7.29	-7.49
36	8.97	0.78
37	-30.18	-8.57
38	-20.27	-11.01
39	13.62	8.53
40	28.88	9.38
41	-0.34	5.3
42	-6.85	0.01
43	35.04	7.4
44	2.82	3.35
45	13.28	3.57
46	8.04	-1.98
47	6.04	5.73
48	-2.4	1.77
49	-7.7	-3.7
50	9.2	2.85
51	10.16	5.87
52	8.99	1.46
53	-10.77	-8.21
54	-1.14	-5.39
55	16.86	6.86
56	-6.59	-4.76
57	20.73	8.75
58	0.44	3.67
59	7.62	-0.24
60	3.37	2.15

Transcribed Image Text:

Caterpillar, Inc. manufactures and sells heavy construction equipment worldwide. The performance of Caterpillar's stock is likely to be strongly influenced by the economy. For instance, during the subprime mortgage crisis, the value of Caterpillar's stock plunged dramatically. Monthly data for Caterpillar's risk-adjusted return (Cat_Adj) and the risk-adjusted market return (Market_Adj) are collected for a five-year period (n = 60). a. Estimate the CAPM: Cat Adj = Bo + B₁(Market_Adj) + ε. Show the regression results in a well-formatted table. b. At the 5% significance level, determine if investment in Caterpillar is riskier than the market (beta significantly greater than 1). c. At the 5% significance level, is there evidence of abnormal returns? Caterpillar, Inc. manufactures and sells heavy construction equipment worldwide. The performance of Caterpillar's stock is likely to be strongly influenced by the economy. For instance, during the subprime mortgage crisis, the value of Caterpillar's stock plunged dramatically. Monthly data for Caterpillar's risk-adjusted return (Cat_Adj) and the risk-adjusted market return (Market_Adj) are collected for a five-year period (n = 60). a. Estimate the CAPM: Cat Adj = Bo + B₁(Market_Adj) + ε. Show the regression results in a well-formatted table. b. At the 5% significance level, determine if investment in Caterpillar is riskier than the market (beta significantly greater than 1). c. At the 5% significance level, is there evidence of abnormal returns?

Answer rating: 100% (QA)

a Estimating the CAPM The CAPM states that the expected return of an asset is a function of its beta ... View the full answer