EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 13, Problem 8PS
Summary Introduction
To determine: The first-pass regression as worked out by Chen, Roll and Ross is to be performed and the relevant summary statistics is to be tabulated along with the estimation of the 12 stocks on the two factors.
Introduction: First pass regression is a time series regression to calculate the betas of retreats portfolios.This is generally tested implication of the
1. Establishing sample data,
2. Estimating the SCL (security characteristic line), and
3. Estimating the SML (security market line).
Expert Solution & Answer
Answer to Problem 8PS
The table given below depicts the first pass regressions.
| A | B | C | D | E | F | G | H | I | |
| R-Square | |||||||||
| Observations | |||||||||
| Intercept | |||||||||
| Beta M | 0.41 | ||||||||
| Beta F | |||||||||
| t- intercept | |||||||||
| t- Beta M | |||||||||
| t- intercept | |||||||||
| t- Beta M | |||||||||
| t- Beta F |
Explanation of Solution
Given Information: Information provided in the question that are used to perform first-pass regression as din Chen,Roll and Ross by estimating the betas of the
The calculated first-pass regression through the table given below and tabulated the relevant summary statistics are:
| A | B | C | D | E | F | G | H | I | |
| R-Square | |||||||||
| Observations | |||||||||
| Intercept | |||||||||
| Beta M | 0.41 | ||||||||
| Beta F | |||||||||
| t- intercept | |||||||||
| t- Beta M | |||||||||
| t- intercept | |||||||||
| t- Beta M | |||||||||
| t- Beta F |
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
You want to estimate the monthly alpha and beta of AXON stock, using the index model. Suppose AXON has a beta of 0.95 and a
monthly alpha of 0.5 (representing half a percent). If you set up the regression model correctly, the index model equation should
be (remember in index model formulas, we use R instead of r to denote excess returns):
Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.
b
с
d
Rmarket =
Rmarket = 0.5 x Rstock +0.95
Raxon
0.95 x Rstock +0.5
=
0.5 x Rmarket +0.95
Raxon = 0.95 x Rmarket +0.5
A stock's beta coefficient can be calculated using the following equation:
B₁
=
Oi, m
σε
m
a. Write a user-defined function that can calculate the beta coefficient. The argu-
ments to the function should be the covariance between the stock and market
returns, and the variance of the market's returns. For example, BETA (COVAR AS
SINGLE, MARKET VAR AS SINGLE).
b. Rewrite your function so that it accepts ranges of returns and then calcu-
lates the beta directly from the returns. It should be defined as: BETA(STOCK-
RETURNS AS RANGE, MARKETRETURNS AS RANGE). Your function should make use
of Application. WorksheetFunction to calculate the covariance and variance
(use Excel's COVAR.S and VAR.S functions). In the code, be sure to check to
see if the number of stock returns is equal to the number of market returns.
The function should return an error if the count of returns is not equal.
Using the data in the following table,, estimate the:
a. Average return and volatility for each stock.
b. Covariance between the stocks.
c. Correlation between these two stocks.
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Comment on the SAS regression output including a-e. Compare and comment on the differences between the two regressions (3- vs. 4-factor model using either OLS or HC results depending upon the White test result) Make conclusions regarding choosing 3- vs. 4-factor model when predicting future stock returns, and explain why.arrow_forwardWhen we test CAPM using historical data, a classic test is to regress excess returns of stocks onto the stock betas, using the following regression specification across stocks: - Rp Rf =α+By+ε where Rup - Rf is the average excess return of a security or portfolio, ẞ is the estimated beta of the security or portfolio, & is the regression residual, and a (Alpha) and y (Gamma) are regression coefficients. Based on the regression, which of the following statements are true if CAPM is true? Select all two correct statements. The Alpha is zero The Alpha is positive The Gamma is positive The Gamma is zeroarrow_forwardConsider the following time series: a. Construct a time series plot. What type of pattern exists in the data? b. Use simple linear regression analysis to find the parameters for the line that minimizes MSE for this time series. c. What is the forecast for t = 6?arrow_forward
- Trend projection is an example of _____________ methods of forecasting. a. Econometric b. Barometric c. Time-series d. Qualitativearrow_forwardConsider the following data for a dependent variable y and two independent variables, x1 and 12. 30 12 94 47 10 109 25 18 112 51 16 178 40 94 51 19 175 75 171 36 12 118 59 13 143 77 17 212 Round your all answers to two decimal places. Enter negative values as negative numbers, if necessary. a. Develop an estimated regression equation relating Y to ¤1. Predict y if æ1 = 35. b. Develop an estimated regression equation relating y to x2. ŷ = + Predict y if x2 = 25. ŷ = c. Develop an estimated regression equation relating y to ¤1 and 2. Predict y if x1 = 35 and x2 = 25. ŷ =arrow_forwardCan you explain, when calculating the mean why the probability is included in the calculation? eg when you're using excel: (0.2*7) + (0.1*7) + (0.3*7) + (0.3*7) + (0.1*7) = 7%arrow_forward
- Stocks A and B have the following returns: (Click on the folowing icon a in order to copy its contents into a spreadsheet.) Stock A Stock B 0.08 0.06 0.15 0.05 0.04 0.05 0.01 -0.01 0.09 -0.03 a. What are the expected roturns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 048, what is the expected return and standard deviation of a portfolio of 75% stock A and 25% stock B? a. What are the expected returns of the two stocks? The expected return for stock A is (Round to three decimal places.)arrow_forwardType the answers with a screen capture of chart. Produce a daily OHLC bar or Candlestick price chart on PTC us stock. Then, add (1) Two moving averages (it can be simple moving averages or exponential moving averages, with one faster and one slower). You can choose any parameter (number of days, simple or exponential) you prefer. (2) Trend lines over the period covered. It can be up trend line, down trend line or channel that you observe from the chart. (3) Technical indicator(s) such as RSI or MACD. Note: after done the drawing, capture the screen and save as picture and then work with your saved pictures. Can use ANY charting app. On the chart, 1. Identify and mark the current key support and resistance levels. They should include the immediate support/resistance level and the next support/resistance levels. "Current" means you are focusing on the current or latest price level, do not mention the support or resistance levels when the price was, say, several months ago in the earlier…arrow_forwardUsing the data generated in the graph, show what the information looks like in a spreadsheet. a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above, and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph.arrow_forward
- 1. Assume a two-factor model explains stock returns. Regression estimates of stocks A and B on the two factors are given below. Stock B, B, A 1.2 -0.5 4 в 3.5 -0.8 2.0 3 Assume further that factor one has expected return of 10 and standard deviation of 8. Factor two has expected return of 5 and standard deviation of 6. a) Calculate expected returns for A and B. b) Calculate standard deviations for A and B. c) Calculate expected return on a portfolio that invests 60% in A and 40% in B.arrow_forwardExpected return and standard deviation. Use the following information to answer the questions: a. What is the expected return of each asset? b. What is the variance of each asset? c. What is the standard deviation of each asset? Hint: Make sure to round all intermediate calculations to at least seven (7) decimal places. The input instructions, phra answers you will type. Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Return on Asset A in State of Economy Boom Normal Recession Probability of State 0.35 0.51 0.14 Print State 0.05 0.05 0.05 Done Return on Asset B in State 0.23 0.08 -0.05 Return on Asset C in State 0.33 0.17 -0.22arrow_forward(Click on the icon here into a spreadsheet.) T in order to copy the contents of the data table below Investment X Y Z Expected return 17% 17% 17% Standard deviation 7% 8% 9%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Chapter 8 Risk and Return; Author: Michael Nugent;https://www.youtube.com/watch?v=7n0ciQ54VAI;License: Standard Youtube License