What is the value of the test statistic for the hypothesis test H₀: b₁ = 0, H_a: b₁ ? 0?

What is the P-value for the hypothesis test H₀: b₁ = 0, H_a: b₁ ? 0?

When analyzing a particular stock's performance (y) compared to the performance of a related benchmark segment of the stock market (x), the slope is a relative risk measurement. The slope depicts a fund's volatility against the benchmark. Many financial analysts calculate the slopes for stock funds using the S&P 500 Index as the benchmark.

This market model assumes that the rate of return of a stock (y) is linearly related to the rate of return (x) of the benchmark:

y = b₀ + b₁x.

In this context the slope b₁ is usually referred to as the beta coefficient of the stock. Beta is explained at most business-oriented web sites, see for example Morningstar.

• Interpretation of beta
• b₁ = 1 means the stock's rate of return moves up and down in perfect harmony with the benchmark market.
• b₁ > 1 means the stock's rate of return is more sensitive to changes in the level of the benchmark market than is the average stock.
• 0 < b₁ < 1 means the stock's rate of return is less sensitive to changes in the level of the benchmark market than is the average stock.

Investors with a high tolerance for risk like b₁ > 1; they can earn more if the overall market improves slightly, but lose more if the market declines even a small amount. Investors with a low tolerance for risk like 0< b₁ < 1.

For example, Texaco has a beta coefficient of 0.44, which means that when the overall market rate of return changes by 1%, Texaco's rate of return changes only 0.44%. So Texaco doesn't move much at all relative to the overall market. An investor with a low tolerance for risk would be attracted to Texaco because its beta coefficient is less than 1.

What does r² mean?

In this setting r² measures the proportion of the total risk in the particular stock related to the benchmark market and 1 - r² measures the proportion of the total risk that is related to specific company-related events and decisions.

DO THE FOLLOWING:

Apply the market model to the Standard and Poor's Composite Index (the x-variable) and the monthly returns of Intel (the y-variable) for a recent 4-year period,?

which are stored in columns 1 and 2, respectively, in this Excel file

Transcribed Image Text:

INDEX INTEL 0.007291 0.228084 0.013532 0.091335 0.021217 -0.012876 -0.024523 -0.171879 0.026318 0.165572 0.003479 -0.007892 -0.004986 -0.049102 0.037531 0.229665 -0.007638 0.101167 0.019717 -0.105306 -0.008966 -0.027668 0.01219 0.00813 0.033612 0.053246 -0.02683 0.05364 -0.043453 -0.018182 0.012034 -0.095578 0.017335 0.02459 -0.024921 -0.064 0.032639 0.013969 0.041427 0.109705 -0.024118 -0.064639 0.022596 0.011173 -0.036316 0.016097 0.014704 0.011881 0.025741 0.087031 0.039381 0.14955 0.029446 0.064263 0.029453 0.206922 0.039665 0.096459 0.024231 0.128062 0.032912 0.027265 0.003592 -0.055769 0.041988 -0.01833 -0.003627 0.160416 0.044155 -0.128801 0.017771 -0.067762 0.035422 -0.025988 0.009802 0.064781 0.009289 -0.032944 0.014987 0.191908 0.025321 0.114391 0.004278 -0.027318 -0.044581 0.023666 0.021952 0.062396 0.056061 0.195771 0.027435 0.151816 0.076412 0.154721 0.0143608 0.043056 INDEX INTEL 0.007291 0.228084 0.013532 0.091335 0.021217 -0.012876 -0.024523 -0.171879 0.026318 0.165572 0.003479 -0.007892 -0.004986 -0.049102 0.037531 0.229665 -0.007638 0.101167 0.019717 -0.105306 -0.008966 -0.027668 0.01219 0.00813 0.033612 0.053246 -0.02683 0.05364 -0.043453 -0.018182 0.012034 -0.095578 0.017335 0.02459 -0.024921 -0.064 0.032639 0.013969 0.041427 0.109705 -0.024118 -0.064639 0.022596 0.011173 -0.036316 0.016097 0.014704 0.011881 0.025741 0.087031 0.039381 0.14955 0.029446 0.064263 0.029453 0.206922 0.039665 0.096459 0.024231 0.128062 0.032912 0.027265 0.003592 -0.055769 0.041988 -0.01833 -0.003627 0.160416 0.044155 -0.128801 0.017771 -0.067762 0.035422 -0.025988 0.009802 0.064781 0.009289 -0.032944 0.014987 0.191908 0.025321 0.114391 0.004278 -0.027318 -0.044581 0.023666 0.021952 0.062396 0.056061 0.195771 0.027435 0.151816 0.076412 0.154721 0.0143608 0.043056

Answer rating: 100% (QA)

To perform the market model analysis and calculate the values requested I will need to import the data provided in the Excel file However as a textbas... View the full answer