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Introduction to Econometrics 3rd Edition by James Stock, Mark Watson
Edition 3ISBN: 978-9352863501Introduction to Econometrics 3rd Edition by James Stock, Mark Watson
Edition 3ISBN: 978-9352863501 Exercise 1
Read the box "The 'Beta' of a Stock" in Section 4.2.
a. Suppose that the value of is greater than 1 for a particular stock. Show that the variance of ( R R f ) for this stock is greater than the variance of ( R m R t ).
b. Suppose that the value of is less than 1 for a particular stock. Is it possible that variance of ( R Rf ) for this stock is greater than the variance of ( R m R t )
c. In a given year, the rate of return on 3-month Treasury bills is 3.5% and the rate of return on a large diversified portfolio of stocks (the S P 500) is 7.3%. For each company listed in the table in the box, use the estimated value of to estimate the stock's expected rate of return.
a. Suppose that the value of is greater than 1 for a particular stock. Show that the variance of ( R R f ) for this stock is greater than the variance of ( R m R t ).
b. Suppose that the value of is less than 1 for a particular stock. Is it possible that variance of ( R Rf ) for this stock is greater than the variance of ( R m R t )
c. In a given year, the rate of return on 3-month Treasury bills is 3.5% and the rate of return on a large diversified portfolio of stocks (the S P 500) is 7.3%. For each company listed in the table in the box, use the estimated value of to estimate the stock's expected rate of return.
Explanation
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a.
Consider the capital asset pricing mo...
Introduction to Econometrics 3rd Edition by James Stock, Mark Watson
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