Question $6$

When we test CAPM using historical data, a classic test is to regress excess returns of stocks

onto the stock betas, using the following regression specification across stocks:

$R_p-R_f=++$

where $R_p-R_f$ is the average excess return of a security or portfolio, $$ is the estimated

beta of the security or portfolio, $$ is the regression residual, and $($Alpha$)$ and $($Gamma$)$ are

regression coefficients.

Based on the regression, which of the following statements are true if CAPM is true? Select

all two correct statements.

The Alpha is zero

The Alpha is positive

The Gamma is positive

The Gamma is zero