Consider the two excess return index-model regression


Consider the two (excess return) index-model regression results for stocks A and B. The riskfree rate over the period was 5%, and the market’s average return was 14%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM – rf) 2% + .8(rM – rf) R-square 0.611 0.454 Residual standard deviation, ?(e) 10.9% 19.7% Standard deviation of excess returns 22.2% 26.1%

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Financial Management: Consider the two excess return index-model regression
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