What is the residual standard deviation of the stock market?
Residual standard deviation = 10.3% RB - 2% + .8 RM R -square .436 Residual standard deviation 9.1% For which stock does market movement explain a greater fraction of return variability? R2 measures the fraction of total variance of return explained by the market return. A's R2 is larger than B's: 0.576 > 0.436
What is the standard deviation of excess return in a two-stock market?
In a two-stock capital market, the capitalization of stock A is twice that of B. The standard deviation of the excess return on A is 30% and on B is 50%. The correlation coefficient between the excess returns is .7. a. What is the standard deviation of the market index portfolio?
What is the standard deviation of market index and risk free rate?
The market index has a standard deviation of 22% and the risk-free rate is 8%. a. What is the standard deviation of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio. 3.
What is the significance of the measure of return on investment?
It is a useful metric in finance when applied to measure the variability of investment returns. High variability in the returns is associated with a high degree of risk, whereas low variability is associated with a relatively low degree of risk.
SUMMARY
1. A single-factor model of the economy classifies sources of uncertainty as systematic (macroeconomic) factors or firm-specific (microeconomic) factors. The index model assumes that the macro factor can be represented by a broad index of stock returns.
PART III Equilibrium in Capital Markets
7. Multifactor models seek to improve the explanatory power of the single-index model by modeling the systematic component of returns in greater detail. These models use indicators intended to capture a wide range of macroeconomic risk factors and, sometimes, firm-characteristic variables such as size or book-to-market ratio.
Responses
Which stock does market movement has a greater fraction of return variability?
What is the term used to describe how much data points in any statistical distribution differ from each other and from their mean value
What is Variability ? Variability is a term used to describe how much data points in any statistical distribution differ from each other and from their mean value. The statistical tools used to measure variability are range, standard deviation.
Why is low variability associated with risk?
On the other hand, low variability is associated with a relatively low degree of risk since returns do not vary as much. The higher the variability, the greater is the uncertainty of getting an assured return. Investors often use the variability in returns as a factor to compare different investment options. Risk-averse investors always choose the ...
What is the difference between variance and variability?
While calculating the returns on an investment, the terms variability and variance are often used interchangeably since both act as indicators of risk. Variance essentially shows the spread of actual data points around their mean value. A higher magnitude of variance signifies that data points are widely distributed around the mean.
What does higher magnitude mean in statistics?
A higher magnitude of variance signifies that data points are widely distributed around the mean. Mean Mean is an essential concept in mathematics and statistics. In general, a mean refers to the average or the most common value in a collection of.