FM11_Ch_05_Tool_Kit

# The chart is shown below we also used the regression

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Unformatted text preview: returns on the y-axis and the market returns on the x-axis. We also used the menu Chart > Options to add a trend line, and to display the regression equation and R2 on the chart. The chart is shown below. We also used the regression feature to get more detailed data. These results are also shown below. GE Analysis The beta coefficient is about 1.10, as shown by the slope coefficient in the regression equation on the chart. The beta coefficient has a t statistic of 7.07, and there is virtually a zero chance of getting this if the true beta coefficient is equal to zero. Therefore, this is a statistically significant coefficient. However, the confidence interval ranges from 0.78 to 1.41, which is very wide. The R2 of about 0.51 indicates that 51% of the variance of the stock return can be explained by the market. The rest of the stock's variance is due to factors other than the market. This is consistent with the wide scatter of points in the graph. GE Reg ression Results (See columns J-N) Beta Coefficient 1.09 t statistic 5.96 Probability of t stat. 0.0% Lower 95% confidence interval 0.72 Upper 95% confidence interval 1.4 6 Histor ic Re aliz e d Re tu rns on GE , rj(%) 30% f(x) = 1.0924 232783x + 0.0052517018 R² = 0.4357997758 20% Intercept Coefficient t statistic Probability of t stat. Lower 95% confidence interval Upper 95% confidence interval 10% 0% -30% - 20% -10% 0% 10% 20% 0.01 0.56 57.6% -0.01 0.02 30% H ist oric Re aliz ed Re t urns on t he Market , rM(%) -10% -20% Mag ellan Analysis The beta coefficient is about 1.04, as shown by the slope coefficient in the regression equation on the chart. The beta coefficient has a t statistic of 42.22, and there is virtually a zero chance of getting this if the true beta coefficient is equal to zero. Therefore, this is a statistically significant coefficient. The confidence interval ranges from 0.99 to 1.09, which is very small compared to the confidence interval for a single stock. The R2 of about 0.97 indicates that 97% of the variance of the...
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## This document was uploaded on 01/20/2014.

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