# The version of the CAPM studied in this chapter specifies a simple regression model as 100 (St rt) =

## Question:

100 (St – rt) = α + 100 β (Mt – rt) + ε

where Mt are the returns on the market, St are the returns on the stock, and rt are the returns on risk-free investments. (See About the Data.) Hence, 100(Mt – rt) are the excess percentage changes for the market and 100(St – rt) are the excess percentage changes for the stock. What happens if we work with the excess returns themselves rather than the percentage changes? In particular, what happens to the t-statistic for the test of H0: a = 0?

## This problem has been solved!

Do you need an answer to a question different from the above? Ask your question!

## Step by Step Answer:

**Related Book For**

## Statistics For Business Decision Making And Analysis

**ISBN:** 9780321890269

2nd Edition

**Authors:** Robert Stine, Dean Foster

**View Solution**

Create a free account to access the answer

**Cannot find your solution?**

Post a FREE question now and get an answer within minutes.
* Average response time.