Given the information below, calculate the cumulative abnormal return (CAR) for these stocks as a group. Assume all companies have an expected return equal to the market return
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Ross Co., Westerfield, Inc., and Jordan Company announced a new agreement to market their respective products in China on July 18, February 12, and October 7, respectively. Given the information below, calculate the cumulative abnormal return (CAR) for these stocks as a group. Assume all companies have an expected return equal to the market return. (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to one decimal place.)
| Ross Co. | Westerfield, Inc. | Jordan Company | ||||||||
| Date | Market Return |
Company Return |
Date | Market Return |
Company Return |
Date | Market Return |
Company Return |
||
| July 12 | −.2 | −.3 | Feb 8 | −.2 | −.3 | Oct 1 | 2.3 | 1.1 | ||
| July 13 | 2.1 | .3 | Feb 9 | −.3 | −.3 | Oct 2 | 2.2 | 1.1 | ||
| July 16 | −.5 | .6 | Feb 10 | .2 | .6 | Oct 3 | .5 | 1.3 | ||
| July 17 | −.6 | −.2 | Feb 11 | .4 | 3.0 | Oct 6 | −.1 | −.1 | ||
| July 18 | −.3 | 1.3 | Feb 12 | −.1 | .1 | Oct 7 | −1.3 | −.1 | ||
| July 19 | −2.8 | .2 | Feb 15 | 1.0 | 2.2 | Oct 8 | 1.0 | .3 | ||
| July 20 | −.9 | −1.2 | Feb 16 | .7 | .5 | Oct 9 | −.5 | −.6 | ||
| July 23 | .6 | .4 | Feb 17 | −.1 | .0 | Oct 10 | .1 | −.1 | ||
| July 24 | 2.1 | .0 | Feb 18 | 2.5 | .4 | Oct 13 | −.2 | −.6 | ||
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
