Anon

Simple Linear Regression 17 over which we do not have any direct control, for example the returns of an individual stock or of s ...

18 The Basics of financial economeTrics The distributions of all ε are identical. Typically, these distributions are assumed to ...

Simple Linear Regression 19 it such that the sum of the vertical distances of the y-values from the line is minimized. However, ...

20 The Basics of financial economeTrics Here, the minimum is obtained analytically by using differential calculus (the first der ...

Simple Linear Regression 21 1 96 2 1 96 xi i= ∑ =0.0025 x^2 =0.00004 (Here, we chose to present x^2 with the more precise five d ...

22 The Basics of financial economeTrics From both the regression parameter b as well as the graphic, we see that the two variabl ...

Simple Linear Regression 23 small, the fit might not be a too overwhelming one. Before introducing this measure formally, we pre ...

24 The Basics of financial economeTrics R^2 takes on values in the interval [0,1]. The meaning of R^2 = 0 is that there is no di ...

Simple Linear Regression 25 Two Applications in Finance In this section, we provide two applications of simple linear regression ...

26 The Basics of financial economeTrics that is, αβSS+ ,,MMr t, and some error εS,t from the exact model at time t. The term αS ...

Simple Linear Regression 27 taBLe 2.2 Data to Estimate the Characteristic Line of Two Large-Cap Mutual Funds Month Market Excess ...

28 The Basics of financial economeTrics taBLe 2.2 (continued) Month Market Excess Return Excess Return for Fund A Excess Return ...

Simple Linear Regression 29 taBLe 2.2 (continued) Month Market Excess Return Excess Return for Fund A Excess Return for Fund B 0 ...

30 The Basics of financial economeTrics and futures markets move together, any loss realized by the hedger on one position (whet ...

Simple Linear Regression 31 exposure to the S&P 500, she could sell all the stocks and, with the funds received, invest in a ...

32 The Basics of financial economeTrics The foregoing points about hedging will be made clearer in the next illustrations. hedge ...

Simple Linear Regression 33 and rI = aI + BIF rF + eI where rF=the return on the stock index futures contract BIF=the beta of th ...

34 The Basics of financial economeTrics Illustration 1 Consider a portfolio manager on January 30, 2009, who is managing a $100 ...

Simple Linear Regression 35 was selling at 822.5. The basis was equal to 3.38 index units (the cash index of 825.88 minus the fu ...

36 The Basics of financial economeTrics Step 2. Beta-adjusted equivalent market index units = 1.05 × 0.745 × $121,581 = $95,106 ...