Suppose you have 5-year annual data on the excess returns on a fund manager’s portfolio (“fund ABC”) and the excess returns on a market index (where is the return on fund ABC, is the risk-free rate and is the return on the market index):

-What is the most appropriate interpretation of the assumption concerning the regression disturbance terms?
A) The errors are nonlinearly independent of one another
B) The errors are linearly dependent of one another
C) The covariance of the errors is constant and finite over all its values
D) The errors are linearly independent of one another

Question

Suppose you have 5-year annual data on the excess returns on a fund manager’s portfolio (“fund ABC”) and the excess returns on a market index (where

is the return on fund ABC,

is the risk-free rate and

is the return on the market index) :

-What is the most appropriate interpretation of the assumption concerning the regression disturbance terms?

-What is the most appropriate interpretation of the assumption concerning the regression disturbance terms? 
A) The errors are nonlinearly independent of one another 
B) The errors are linearly dependent of one another 
C) The covariance of the errors is constant and finite over all its values 
D) The errors are linearly independent of one another

Quizplus · Accepted Answer

The Answer of Suppose you have 5-year annual data on the excess returns on a fund manager’s portfolio (“fund ABC”) and the excess returns on a market index (where   is the return on fund ABC,   is the risk-free rate and   is the return on the market index):

-What is the most appropriate interpretation of the assumption concerning the regression disturbance terms? 
A) The errors are nonlinearly independent of one another 
B) The errors are linearly dependent of one another 
C) The covariance of the errors is constant and finite over all its values 
D) The errors are linearly independent of one another

Suppose You Have 5-Year Annual Data on the Excess Returns