HW6_sol - Purdue University Krannert School of Management...

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Purdue University Krannert School of Management MGMT 411: INVESTMENTS Assignment #6 Solutions 1. Download the Excel file called “testing CAPM” from our course site. The spreadsheet contains the monthly returns of 10 portfolios sorted by past six-month return, as well as the market and the T-bill rate. The portfolio called “Losers” consists of the bottom 10% of stocks in terms of past six-month returns, portfolio 2 consists of stocks whose past six-month return is between the bottom 10% and 20%, etc. a) What is the CAPM alpha of portfolio 2 and is it significantly different from zero? What is the CAPM beta of portfolio 2 and is it significantly different from zero? Where is portfolio 2 located relative to the SML line? The output from the CAPM regression is: Regression Statistics R Square 0.786588743 Standard Error 0.038241436 Observations 996 Coefficients Standard Error t Stat Intercept -0.004227942 0.00121922 1 - 3.467739123 X Variable 1.339748158 0.02213424 8 60.52828838 The alpha is -0.004. It is significantly different from zero. Beta is 1.34 and it is also
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This note was uploaded on 02/06/2012 for the course MGMT 411 taught by Professor Clarke during the Spring '09 term at Purdue.

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HW6_sol - Purdue University Krannert School of Management...

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