00 and has a t statistic with a probability of 338

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Unformatted text preview: portfolio return can be explained by the market. This is consistent with the very narrow scatter of points in the graph. The estimate of the intercept is equal to 0.00, and has a t statistic with a probability of 33.8%. Since this is greater than 5%, we would say that the coefficient is not statistically significant-- in other words, the true intercept might well be equal to zero. Mag ellan Reg ression Results (See columns J-N) Beta Coefficient 1.02 t statistic 4 2.86 Probability of t stat. 0.0% Lower 95% confidence interval 0.97 Upper 95% confidence interval 1.07 Historic Re a liz e d Re turn s on Mage llan, rP(%) 20% f(x) = 1.0205791691x + 0.0006942857 R² = 0.9755680832 Intercept Coefficient t statistic Probability of t stat. Lower 95% confidence interval Upper 95% confidence interval 10% 0% -30% -20% -10% 0% 10% 20% 0.00 0.57 57.0% 0.00 0.00 30% H ist o ric Re aliz ed Ret u rns o n t h e M arke t , r M(% ) - 10% - 20% The Market Model vs. CAPM We have been regressing the stock (or portfolio) returns against the market returns. However, CAPM actually states that we should regress the excess stock returns (the stock return minus the short-term risk free rate) against the excess market returns (the market return minus the short-term risk free rate). We show the graph for such a regression below. Notice that it is virtually identical to the market model regression we used earlier for GE. Since it usually doesn't change the results whether we use the market model to estimate beta instead of the CAPM model, we usually use the market model. CAPM (excess return) Model Reg(See columns J-N) ression Results Beta Coefficient 1.09 t statistic 5.92 Probability of t stat. 0.0% Lower 95% confidence interval 0.72 Upper 95% confidence interval 1.4 6 Ex ce ss Re turns on GE, r S-rRF 30% f(x) = 1.088091704 2x + 0.0054 88394 6 R² = 0.432643937 20% Intercept Coefficient t statistic Probability of t stat. Lower 95% confidence interval Upper 95% confidence interval 10% 0.01 0.58 56.3% -0.01 0.02 0% -30% -20% -10% 0% -10% 10% 20% 30% Excess Ret urns on t he Market , rM- rRF -20% Table 5-4 Regression Coefficient t Statistic Panel a: General Electric (Market model) 01/20/2014 Page 1 Probability of t Statistic Lower 95% Confidence I nterval Upper 95% Confidence Interval...
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This document was uploaded on 01/20/2014.

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