Determine the monthly returns for S&P 500 and UVW Stock Inc. Then calculate the average returns and standard deviations for both. Finally, use the returns data to create a linear regression with a trendline equation. Explain the Beta and alpha of the equation as these relate to S&P 500 and UVW Stock Inc. Date S&P 500 UVW Stock Inc. 3-Jan-07 1438.24 68.95 1-Feb-07 1406.82 77.46 1-Mar-07 1420.86 72.98 2-Apr-07 1482.37 81.34 1-May-07 1530.62 79.04 1-Jun-07 1503.35 75.44 2-Jul-07 1455.27 76.54 1-Aug-07 1473.99 83.45 4-Sep-07 1526.75 78.35 1-Oct-07 1549.38 89.95 1-Nov-07 1481.14 66.43 3-Dec-07 1468.36 82.56 2-Jan-08 1378.55 75.32 Monthly Returns S&P UVW 1-Feb-07 -2.18% 12.34% 1-Mar-07 1.00% -5.78% 2-Apr-07 4.33% 11.46% 1-May-07 3.25% -2.83% 1-Jun-07 -1.78% -4.55% 2-Jul-07 -3.20% 1.46% 1-Aug-07 1.29% 9.03% 4-Sep-07 3.58% -6.11% 1-Oct-07 1.48% 14.81% 1-Nov-07 -4.40% -26.15% 3-Dec-07 -0.86% 24.28% 2-Jan-08 -6.12% -8.77% Average Return -0.30% 1.60% Standard deviation 3.18% 12.93% explain the beta and alpha y=1.4504x+0.0204
Added by Victor Manuel C.
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To do this, we can use the formula: Monthly Return = (Ending Value - Beginning Value) / Beginning Value For example, for the S&P 500 on 3-Jan-07, the monthly return would be: (1438.24 - 1378.55) / 1378.55 = 0.0434 or 4.34% We can calculate the monthly returns Show more…
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Use the data in VOLAT for this exercise. The variable $r s p 500$ is the monthly return on the Standard \& Poor's 500 stock market index, at an annul rate. (This includes price changes as well as dividends.) The variable $i 3$ is the return on three-month T-bills, and pcip is the percentage change in industrial production; these are also at an annual rate. (i) Consider the equation $r s p 500_{t}=\beta_{0}+\beta_{1} p c i p_{t}+\beta_{2} i 3_{t}+u_{t}$ What signs do you think $\beta_{1}$ and $\beta_{2}$ should have? (ii) Estimate the previous equation by OLS, reporting the results in standard form. Interpret the signs and magnitudes of the coefficients. (iii) Which of the variables is statistically significant? (iv) Does your finding from part (iii) imply that the return on the S\&P 500 is predictable? Explain.
The following frequency distribution shows the monthly stock returns (in percent) for Home Depot for the years 2003 through 2007. (You may find it useful to reference the appropriate table: chi-square table or F table) Monthly Returns Observed Frequency Less than -5 13 -5 up to 0 16 0 up to 5 20 5 or more 11 n = 60 SOURCE: www.yahoo.finance.com. Over this time period, the following summary statistics are provided: Mean: 0.31% Median: 0.43% Standard Deviation: 6.49% Skewness: -0.15 Kurtosis: -0.38 a-1. Choose the null and alternative hypotheses. H0: The monthly stock returns do not follow a normal distribution with a mean of 0.31% and a standard deviation of 6.49%.; HA: The monthly stock returns follow a normal distribution with a mean of 0.31% and a standard deviation of 6.49%. H0: The monthly stock returns follow a normal distribution with a mean of 0.31% and a standard deviation of 6.49%.; HA: The monthly stock returns do not follow a normal distribution with a mean of 0.31% and a standard deviation of 6.49%. a-2. Calculate the value of the test statistic. (Round intermediate calculations to at least 4 decimal places and final answer to 3 decimal places.) Test statistic a-3. Find the p-value. p-value < 0.01 0.01 ≤ p-value < 0.025 0.025 ≤ p-value < 0.05 0.05 ≤ p-value < 0.10 p-value ≥ 0.10 a-4. Can you conclude that monthly returns do not follow the normal distribution at the 5% significance level? No since the p-value is less than α. Yes since the p-value is less than α. Yes since the p-value is more than α. No since the p-value is more than α. b-1. Using the Jarque-Bera test, calculate the value of the test statistic. (Round intermediate calculations to at least 4 decimal places and final answer to 3 decimal places.) Test statistic
Adi S.
One measure of the risk for volatility of an individual stock is the standard deviation of the total return (capital appreciation plus dividends) over several periods of time. Although the standard deviation is easy to compute, it does not take into account the extent to which the price of a given stock varies as a function of a standard market index, such as the S&P 500. As a result, many financial analysts prefer to use another measure of risk referred to as beta. Betas for individual stocks are determined by simple linear regression. The dependent variable is the total return for a particular stock and the independent variable is the total return for the stock market. For this exercise, you will use the S&P 500 index as the measure of the total return for the stock market, and an estimated regression equation will be developed using monthly data. The beta for the stock is the slope of the estimated regression equation (b1). The data contained in the file named 'Beta' provides the total return (capital appreciation plus dividends) over 36 months for eight widely traded common stocks and the S&P 500. The value of beta for the stock market will always be 1; thus stocks that tend to rise and fall with the stock market will also have a beta close to 1. Betas greater than 1 indicate that the stock is more volatile than the market, and betas less than 1 indicate that the stock is less volatile than the market. For instance, if a stock has a beta of 1.4, it is 40% more volatile than the market, and if a stock has a beta of 0.4, it is 60% less volatile than the market. Managerial report: You have been assigned to analyze the risk characteristics of these stocks. Prepare a report that includes, but is not limited to, the following items: 1. Compute the descriptive statistics for each stock and the S&P 500. Comment on your results.
Areen D.
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