Tiffany & Co. has been the world's premier jeweler since 1837. The performance of Tiffany's stock is likely to be strongly influenced by the economy. Monthly data for Tiffany's risk-adjusted return and the risk-adjusted market return are collected for a five-year period . The accompanying table shows the regression results when estimating the Capital Asset Pricing Model (CAPM) model for Tiffany's return. When testing whether the beta coefficient is significantly greater than one, the relevant critical value at the 5% significance level is t_0.05,58 = 1.672. The conclusion to the test is to ________. A) reject H₀; we can conclude that the return on Tiffany stock is riskier than the return on the market B) not reject H₀; we can conclude that the return on Tiffany stock is riskier than the return on the market C) reject H₀; we cannot conclude that the return on Tiffany stock is riskier than the return on the market D) not reject H₀; we cannot conclude that the return on Tiffany stock is riskier than the return on the market

Question

Quizplus · Accepted Answer

The relevant null and alternative hypotheses are:
H0: β = 1 (beta coefficient is not significantly greater than one)
Ha: β > 1 (beta coefficient is significantly greater than one)

The t-statistic for the beta coefficient is 2.13, which is greater than the relevant critical value of 1.672. Therefore, we reject the null hypothesis and conclude that the beta coefficient for Tiffany's stock is significantly greater than one. This means that the return on Tiffany stock is riskier than the return on the market. Choice A is the correct answer.