Question 2

Q2. For the given individual stock returns below (X and Y) estimate ten-month Static CAPM using SP500 index returns as market benchmark. Then use the Static CAPM estimates to forecast each asset's expected return in the next future month (Mar-20) for the given risk-free rate of 0.0042. (70 MARKS) Date X Y SP500 Rrf 20-Feb -0.0524 -0.0219 -0.0097 0.0014 20-Jan -0.0052 -0.0019 -0.0007 0.0013 19-Dec 0.0088 0.0002 -0.0029 0.0014 19-Nov 0.0300 0.0053 -0.0032 0.0015 19-Oct 0.0280 -0.0375 0.0110 0.0009 19-Sep 0.1168 -0.0679 0.0396 0.0011 19-Aug 0.1700 -0.0436 -0.0627 0.0019 19-Jul -0.0229 -0.0943 -0.0211 0.0023 19-Jun -0.0354 0.0188 0.0592 0.0024 19-May -0.1567 -0.0292 -0.1695 0.0031 19-Apr 0.0718 -0.1822 -0.0131 0.0032 19-Mar 0.0111 0.0151 0.0431 0.0032 19-Feb 0.0167 0.0285 0.0477 0.0035 19-Jan -0.0183 -0.0564 0.1327 0.0040