Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 110

Analyzing Disney’s Performance

! Intercept = 0. 0467 %

• This is an intercept based on monthly returns. Thus, it has to be compared to a
  monthly riskfree rate.


• Between 1999 and 2003 ,
  
  
  • Monthly Riskfree Rate = 0. 313 % (based upon average T.Bill rate: 99 - 03 )
  
  
  • Riskfree Rate ( 1 - Beta) = 0. 313 % ( 1 - 1. 01 ) = - .. 0032 %
    ! The Comparison is then between
    Intercept versus Riskfree Rate ( 1 - Beta)
  
  
  
  

0. 0467 % versus 0. 313 %( 1 - 1. 01 )=- 0. 0032 %

• Jensen’s Alpha = 0. 0467 % - (- 0. 0032 %) = 0. 05 %
  ! Disney did 0. 05 % better than expected, per month, between 1999 and 2003.


• Annualized, Disney’s annual excess return = ( 1. 0005 )^12 - 1 = 0. 60 %

Disney did 0.60% better than expected on an annual basis between 1999 and

2003.