• Dependent variable:
RET = annual stock returns (%)
• Independent variables:
MKT = market capitalization (per million $)
IND = industry quartile ranking (IND = 4 is the highest ranking)
FORT = Fortune 500 firm, where FORT = 1 if the stock is that of a Fortune 500
firm, and FORT = 0 if not a Fortune 500 stock.
The regression results are presented in the table below:
|
Coefficient |
Std Error |
t-statistic |
P-Value |
|
|
Intercept |
0.5220 |
1.2100 |
0.430 |
0.681 |
|
Market capitalization |
0.0460 |
0.0150 |
3.090 |
0.021 |
|
Industry Ranking |
0.7102 |
0.2725 |
2.610 |
0.040 |
|
Fortune 500 |
0.900 |
0.5281 |
1.700 |
0.139 |
(b) What is the closest value to the expected amount of the stock return attributable to it
being a Fortune 500 stock? Justify your answer. (5)
The linear regression equation is given by
stock returns = 0.522 + 0.046 market capitalization + 0.7102 industry ranking + 0.900 fortune 500
It indicates that the amount of stock return will increase by 0.900 if x is increased by 1 unit.
• Dependent variable: RET = annual stock returns (%) • Independent variables: MKT = market capitalization...