ow are returns on common stocks in overseas markets related to returns in U.S. m

Question

ow are returns on common stocks in overseas markets related to returns in U.S. markets? Measure U.S. returns by the annual rate of return on the Standard & Poor's 500-Stock Index and overseas returns by the annual rate of return on the Morgan Stanley EAFE (Europe, Australasia, Far East) index. Both are recorded in percents. Regress the EAFE returns on the S&P 500 returns for the 28 years 1972 to 2000. Here is part of the output for this regression. The regression equation is EAFE = 4.85 + 0.665 S&P. (Round your answer for F to two decimal places and your answers for SS and MS to one decimal place.) for

Complete the analysis of variance table by filling in the missing boxes. (Round your answer for s to two decimal places and your answer for r2 to three decimal places.)

What is s?

What is r2?

Analysis of Variance Source DF SS MS F Regression 1 1443.7 1443.7 Residual Error Total 27 13843.4

Explanation / Answer

Answer to the questiona are:

df of residual error = total df - regression df = 27-1 = 26
SS of residual error = total SS - regression SS = 13843.4 - 1443.7 = 12399.7
MS of residual error = SS of residual error / df of residual error = 12399.7/26 = 476.9115
F value = MS of regression / MS of Residual error = 1443.7 /476.9115 = 3.0272

s = the Standard Error of the Regression (S) formula = sqrt(SSresidual/dfresidual) = sqrt(12399.7/26) =21.84
r2 = SSregression/SS total = 1443.7/13843.4 = .104288 or 10.429%

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