78106_06_Web_Ch06B_p01-04

78106_06_Web_Ch06B_p01-04 - WEB EXTENSION Estimating Beta...

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WEB EXTENSION 6B Estimating Beta with a Financial Calculator F or an illustration of how betas are calculated with a financial calculator, consider Table 6B-1, which contains data showing the historical realized returns for Stock i and for the market over the last 5 years. Recall that beta is estimated as the slope coefficient from a regression with the market return as the X variable and the stock return as the Y variable. The proce- dures that follow explain how to estimate the slope (which is the estimated beta) using either a Texas Instruments or Hewlett-Packard financial calculator. 6.1 T EXAS I NSTRUMENTS BA-II P LUS 1. Press 2nd RESET ENTER to set the statistics calculation method to standard linear regression and X, Y, and all other values to zero. 2. Press 2nd DATA to select the data entry portion of the calculator s statistical function. Once you do this, X01 appears on your screen with 0 as a value. 3. Key in 23.8 (the first X data point) and press ENTER to enter the first X variable. 4. Press , key in 38.6, and press ENTER to enter the first Y variable. 5. The remaining X and Y variables may be entered by repeating Step 4. 6. Once all the data have been entered, press 2nd STAT to select the statistical function desired, and LIN (stands for standard linear regression) should appear on the calculator screen. Then press to obtain statistics on the data. After pressing eight times, the y-intercept (a) will be shown, - 8.92. Then press again and the slope coefficient (beta) will be shown, 1.60, and if you press one more time the correlation coefficient, 0.91, will be shown.
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78106_06_Web_Ch06B_p01-04 - WEB EXTENSION Estimating Beta...

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