Using the data in Sheet below, estimate the index models for the three stocks AMBERTECH, AGL ENERGY and JB HI-FI. You need to use monthly return observations for the above companies and the market (All ordinaries index) together with the risk free rate (three-month bank bill rate) for the period from January 2016 to December 2018 to estimate index models.

1. Report the following for each stock: alpha, beta and correlation with the market.

2. Which stock has the highest sensitivity to the movements in the market?

3. Which stock has the lowest sensitivity to the movements in the market?

4. What proportion of the variation in the return of each stock is explained by the movements in the market?

5. Calculate the market risk and the unique risk for each stock, and show that the sum of these two is equal to the variance of the stock.

6. Assume that you have created a portfolio with the following weights: 25% in three- month bank bills, 25% in AMBERTECH, 30% in AGL ENERGY and 20% in JB HI- FI.

   1. What is the beta of your portfolio?

   2. What is the market risk of your portfolio?

   3. What is the unique risk of your portfolio?

7. Using the data in sheet 2, calculate the following for your portfolio on a monthly basis from January 2019 to March 2019: actual return, expected return, abnormal return.

8. Based on your calculations in (7) above, explain whether your portfolio has outperformed or underperformed the market during the three-month period ending in March 2019.

MONTH	PRICE_AMBERTECH	PRICE_AGL ENERGY	PRICE_JB HI-FI	ASX ALL ORDINARIES INDEX	3-MONTH BANK BILL RATE (%)
2015/12/31	0.125	18.08	19.284	5344.6	2.34
2016/1/29	0.125	18.6	23.1368	5056.6	2.30
2016/2/29	0.125	18.34	21.8624	4947.9	2.28
2016/3/31	0.15	18.4	23.2949	5151.8	2.31
2016/4/29	0.125	18.29	21.7044	5316	2.26
2016/5/31	0.145	18.59	23.0381	5447.8	2.01
2016/6/30	0.125	19.29	23.8086	5310.4	1.99
2016/7/29	0.13	20.58	25.6264	5644	1.93
2016/8/31	0.135	18.55	29.331	5529.4	1.76
2016/9/30	0.135	19.05	28.97	5525.1	1.73
2016/10/31	0.135	19.18	28.39	5402.4	1.75
2016/11/30	0.16	20.98	27.68	5502.4	1.76
2016/12/30	0.16	22.09	28.04	5719.1	1.78
2017/1/31	0.16	22.6	27.65	5675	1.78
2017/2/28	0.16	24.12	26.82	5761	1.78
2017/3/31	0.2	26.37	24.7	5903.8	1.79
2017/4/28	0.2	26.76	24.69	5947.6	1.77
2017/5/31	0.2	26.35	23.12	5761.3	1.73
2017/6/30	0.15	25.5	23.37	5764	1.72
2017/7/31	0.13	24.1	26.01	5773.9	1.70
2017/8/31	0.14	23.99	23.13	5776.3	1.70
2017/9/29	0.13	23.37	22.92	5744.9	1.72
2017/10/31	0.14	25.27	22.9	5976.4	1.70
2017/11/30	0.145	24.99	23.61	6057.2	1.72
2017/12/29	0.125	24.36	24.94	6167.3	1.77
2018/1/31	0.125	23.44	29.23	6146.5	1.79
2018/2/28	0.12	21.86	25.95	6117.3	1.77
2018/3/30	0.125	21.68	25.81	5868.9	1.93
2018/4/30	0.14	21.73	25.7	6071.6	2.06
2018/5/31	0.155	22.1	23.99	6123.5	1.96
2018/6/29	0.16	22.48	22.52	6289.7	2.07
2018/7/31	0.155	21.99	23.85	6366.2	2.02
2018/8/31	0.14	20.78	26.4	6427.8	1.96
2018/9/28	0.185	19.5	25.19	6325.5	1.93
2018/10/31	0.145	18	23	5913.3	1.93
2018/11/30	0.145	18.81	23.17	5749.3	1.94
2018/12/31	0.145	20.6	22.14	5709.4	2.02