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Thus, the test statistics 1.958<2.0345, which cannot reject the null hypothesis. Therefore, the slope coefficient is not significantly different from one.
Interpret the intercept and slope coefficients – what are they telling us? (max 150 words)
In theCAPM model, the intercept () coefficient is -4.0206, which means that mean value of dependent variable (r_i-r_rf) is -4.0206, when the independent variable (r_m-r_rf) =0.
The slope () coefficient is 1.8331, which means that the dependent variable (r_i-r_rf) increases by 1.8331, on average, for each additional increase in independent variable (r_m-r_rf). In other words, when the independent variable (r_m-r_rf) increases by one unit, the dependent variable r_i-r_rf will increase 1.8331.
Interpret the R2 of the regression – what is it telling us? (max 100 words)
The R2 of the regression is the ratio of SSR to SST, which measures the proportion of variation in dependent variable that is explained by the independent variable in the regression model. In this CAPM model, the R2 of the regression is 0.36, which means that 36% of the variation in dependent variable (r_i-r_rf) is explained by the variability in independent variable (r_m-r_rf).
PART THREE (30 marks)
Find your stock on Bloomberg. Hint: be careful to choose the equity of the company and not some other debt instrument. Use the ANR function to find information on analyst recommendations. Save a screenshot and insert into this file and then provide a commentary
Insert screenshot here
Comment on the analyst recommendations. Each of you is looking at the recommendations for a different stock so there is no one way of answering this question. I suggest you focus on whatever is striking about the recommendations for your stock. You may want to consider: the degree of consensus or disagreement; the change in recommendations over time; the comparison of target and actual price; etc. If it helps your discussion, you can include an additional Bloomberg screenshot if relevant, but you must stay within the word count (max 200 words)
The slope () coefficient refers to the risk measurement between the selected security and the market index. If the slope () coefficient is larger than 1, the expected rate of return on the selected stock is larger than the market index. In other words, the larger the coefficient of CAPM, the greater expected rate of return on the selected stock. In the CAPM model, the fluctuating range of my selected stock is 1.8 times the S&P 500 index. However, the α coefficient denotes thereturns of non-market, which can measure the manager performance. The α coefficient is larger than 0 means that the manager performance is good. However, in the CAPM model, the manager performance is less than the uncertainties future, which cause uncertainty returns of future.
According to Bloomberg, most analyst recommends that I should hold the stock. Since the greater expected rate of return on the selected stock and the uncertainties future, I agree with this recommendation.
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