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Sample Midterm 2 Problems

Sample Midterm 2 Problems - index in 0.01 a What is the...

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Sample Midterm 2 CAPM
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12. What is the momentum effect? What is one possible explanation for it? Index Model 1. You have information about two stocks: IBM and Boeing. Namely, the output from regressing the monthly returns of IBM and Boeing on the S&P 500 Index monthly return is: IBM Regression
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Statistics Idios. risk 0.053 Observations 600 Coefficients Standard Error Alpha 0.0022 0.0014 Beta 0.701 0.08 Boeing Regression Statistics Idios. risk 0.045 Observations 600 Coefficients Standard Error Alpha 0.0054 0.0027 Beta 1.52 0.17 The volatility of the market index is 0.0574 per month. The average monthly return of the market
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Unformatted text preview: index in 0.01. a) What is the covariance between the two stocks based on the output from the index model? b) You believe that the true sensitivity of IMB with respect to movements in the S&P index is 0.801. Test this hypothesis and provide a conclusion as to whether you reject it or not. c) What are the expected returns of IBM and Boeing, according to the index model?...
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