Look back to the top-right panel of Figure 9.2 . What proportion of Amazon’s ret

Question

Look back to the top-right panel of Figure 9.2 . What proportion of Amazon’s returns was explained by market movements? What proportion of risk was diversifiable? How does the diversifiable risk show up in the plot? What is the range of possible errors in the estimated beta?

Amazon run, % -2218 Atim, % -2156 R 272 20 R-297 10 Market ntun % Market return, % 30 20 -10 20 30 30 20 -10 10 20 30 January 1999- Decombor 2003 January 2004- Decombor 2008 Disney return % Disnay otun % -.957 R2-298 R2-395 1Q Market Rturn, % January 1999- Decombor 2003 Campbell Soup 20 return, % return % -.426 -Markot return, % return, % 10 20 30

Explanation / Answer

Proportion of Amazon’s returns was explained by market movements = Variance = .297 or 29.7%
Proportion of risk diversifiable = 1 - 29.7% = 70.3%
Diversifiable risk shows up in the plot in the scatter about the fitted line
Range of possible errors in the estimated beta = .436 standard error
The true beta was 2 x .436 = .872 either side of the estimate, there would have a 95% chance of being right.

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.