Chipotle Mexican Grill (NYSE ticker symbol, CMG) has been disgraced in recent years by the lack of
Question:
Chipotle Mexican Grill (NYSE ticker symbol, CMG) has been disgraced in recent years by the lack of food safety in some of their restaurants. To help bring customers back, senior management had proposed giving away 9 million burritos. Please read the attached article from Reuters for more details. However, at an average price of approximately $7 per burrito, the giveaway amounts to $63 million in lost top-line revenue. Hence, given CMG is a publicly-traded firm, it is of interest to determine how the stock market reacted to this proposed marketing campaign.
I have provided daily returns data for both CMG and the S&P 500 index for the year leading up to the 7 PM press release on 3/16/16 detailing the marketing campaign. The daily returns of CMG, denoted R_CMG in the Excel workbook, represent the dependent variable in the regression model. Daily returns of the S&P 500 index, denoted R_SP500, represent the independent variable in the regression. Use Excel's regression functionality to estimate your causal model. This model actually has a special name in finance as it is a famous paradigm. It is called the Capital Asset Pricing Model or CAPM. You will cover the CAPM paradigm initially in MBA 650 (Managerial Finance) and extensively if you take my MBA 648 course (Financial Modeling). Thoroughly interpret your regression results.
Next, create a scatter plot of this data in Excel and try to exactly match my formats in the attached Chipotle Chart file. Note that I have provided you some check figures for your regression analysis as I inserted the regression line, regression equation, and fit metric into the scatter plot (and you should too).
Finally, using your causal model, forecast the daily return of Chipotle on 3/17/16 given the daily return of the S&P 500 index of 0.66%. Hint: use 0.0066 as the value, not 0.66, to obtain the correct forecast. Note that this is the next trading day immediately following the press release. Since the press release was provided at 7 PM on 3/16/16, the equity market had no opportunity to respond until 3/17/16. Since the actual daily return of Chipotle on 3/17/16 was -5.92%, comment about the error of your forecast. Hint: "actual" minus "forecast" equals "error" or what we call an "abnormal return" in this type of analysis using the CAPM paradigm.
| DATE | R_CMG | R_SP500 |
| 3/18/2015 | 0.19% | 1.21% |
| 3/19/2015 | 1.09% | -0.49% |
| 3/20/2015 | 0.87% | 0.90% |
| 3/23/2015 | 0.10% | -0.17% |
| 3/24/2015 | -0.95% | -0.62% |
| 3/25/2015 | -2.20% | -1.47% |
| 3/26/2015 | -1.08% | -0.24% |
| 3/27/2015 | 0.59% | 0.24% |
| 3/30/2015 | -1.12% | 1.22% |
| 3/31/2015 | -0.74% | -0.88% |
| 4/1/2015 | 0.31% | -0.40% |
| 4/2/2015 | -0.02% | 0.35% |
| 4/6/2015 | 1.16% | 0.66% |
| 4/7/2015 | -0.24% | -0.21% |
| 4/8/2015 | -0.60% | 0.27% |
| 4/9/2015 | -0.43% | 0.44% |
| 4/10/2015 | 4.69% | 0.52% |
| 4/13/2015 | 0.10% | -0.46% |
| 4/14/2015 | -0.86% | 0.16% |
| 4/15/2015 | -0.04% | 0.51% |
Expert Answer:
