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Unformatted text preview: ECON 2P91: Business Econometrics with Applications Winter 2011 Lab2 (Week of February 14 th ) The objective of this week’s labs is to demonstrate the use of GRETL to transform variables and use the transformed variables to estimate the parameters of a simple linear regression model and test the appropriate hypotheses (using both the significance approach and p-value approach) and interpret the results of these hypotheses tests. The Capital Asset Pricing Model (CAPM) suggests that there should be a linear relationship between the risk premium of stock j (i.e. the difference between stock j’s return and the risk free market rate), and the overall market risk premium (i.e. the difference between the overall market rate of return and the risk free market rate). This relationship could be specified as t t t t t u RFREE RMARKET RFREE RJ +- + =- ) ( ) ( 1 β β where t RJ is the return of the j-th firm at time t, t RFREE is the risk free return at time t, and t RMARKET is the market rate of return at time t. One of the main objectives of CAPM is to obtain estimates of a measure of risk for an asset. On the basis of finance CAPM is to obtain estimates of a measure of risk for an asset....
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This note was uploaded on 04/28/2011 for the course ECON 2P91 taught by Professor Ogwang during the Winter '09 term at Brock University.
- Winter '09