Question: For Example, test for the existence of a linear relationship between returns on the stock and returns on the market as a whole.
Example: The Market Sensitivity Report, issued by Merrill Lynch, Inc., lists estimated beta coefficients of common stocks as well as their standard errors. Beta is the term used in the finance literature for the estimate b1 of the regression of returns on a stock versus returns on the stock market as a whole. Returns on the stock market as a whole are taken by Merrill Lynch as returns on the Standard & Poor's 500 index. The report lists the following findings for common stock of Time, Inc.: beta = 1.24, standard error of beta = 0.21, n = 60. Is there statistical evidence to reject the claim that the Time stock moves, in general, with the market as a whole?