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The formal three factor model is given as follows: XRAAPLt =

Assignment Help Finance The formal three factor model is given as follows: XRAAPLt =

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The formal three factor model is given as follows: XRAAPLt =

The formal three factor model is given as follows: XRAAPLt = ? + ?*XRMKTt + ?SMB*SMBt + ?HML*HML … Show more The formal three factor model is given as follows: XRAAPLt = ? + ?*XRMKTt + ?SMB*SMBt + ?HML*HMLt + ?t From the parameter estimation, we have the following: Variable – Parameter Coefficients Standard Errors t-Statistics Intercept – ? 1.2664 0.6423 1.9717 XRMKTt – ? 1.2546 0.1455 8.6218 SMBt – ?SMB 0.4690 0.2264 2.0718 HMLt – ?HML -0.4428 0.1800 -2.4600 R 2 0.2395 F-ratio 35.8988 Number of observations 346 Durbin-Watson 1.8911 1) 1nterpret the model from a financial perspective. That is, what are these four estimated coefficients telling you about Apple’s systematic stock market performance? Does each make theoretical and intuitive sense? Explain your answers. (Note that a non-zero intercept or alpha denotes the presence of arbitrage opportunities.) 2 Comment briefly on the statistical significance of the intercept and each of the independent variables as indicated by their t-ratios and on the statistical significance of the model as a whole as indicated by the F-ratio. What is the interpretation of R 2 ? 3 The CAPM for Apple, which excludes the SMB and HML variables, has a beta (?) value of 1.3699, an R 2 of 0.2119 and an F-ratio of 92.52. Has there been any appreciable gain in predictive power with the three factor model? Conduct a t-test on the null hypothesis that beta (?) truly equals 1.3699 given the above estimate of 1.2546 and its standard error of 0.1455. Also, comment on the CAPM intercept term of 1.1758 and its implications for investors given its statistical significance. Variable – Parameter Coefficients Standard Errors t-Statistics Intercept – ? 1.1758 0.6505 1.8074 XRMKTt – ? 1.3699 0.1424 9.6186 • Show less

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