SCENARIO 12-7
An investment specialist claims that if one holds a portfolio that moves in the opposite direction to the market index like the S&P 500, then it is possible to reduce the variability of the portfolio's return.In other words, one can create a portfolio with positive returns but less exposure to risk.
A sample of 26 years of S&P 500 index and a portfolio consisting of stocks of private prisons, which are believed to be negatively related to the S&P 500 index, is collected.A regression analysis was performed by regressing the returns of the prison stocks portfolio (Y) on the returns of S&P 500 index (X) to prove that the prison stocks portfolio is negatively related to the S&P 500 index at a 5% level
of significance.The results are given in the following EXCEL output.
-Referring to Scenario 12-7, to test whether the prison stocks portfolio is negatively related to the S&P 500 index, the measured value of the test statistic is
A) -7.019
B) -0.503
C) 0.072
D) 0.357
Correct Answer:
Verified
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