Suppose you obtain the monthly regression output of the beta estimation for Elm

Question

Suppose you obtain the monthly regression output of the beta estimation for Elm Inc.

Is the beta statistically significant at 5% significance? Why? Now assume that you expect the return on the market will be 10% at the end of the month, what will be your best estimate of the expected return for Elm's stock according to this regression line?

Coeficcients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Intercept .006 .007 .882 .380 -0.008 .021 -0.008 X Variable 1 2.589 1.443 1.794 .075 1.328 1.915 1.328

Explanation / Answer

To measure the significance of Beta, it has to be a two tailed T-test.

For two tailed T-test ,p value has to be lesser than 0.025 for the variable to be significant.Since here, the p value for X variable is 0.075 which is higher than 0.025 ,we can conclude that the beta is statistically not significant at 5% significance level.

The regression line-

expected return for Elm's stock = Intercept + 2.589*X Variable

                                               = .006 + 2.589*10% =26.49%

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