10E 502 Returns on common stocks in the United States and overseas appear to be

Question

10E 502 Returns on common stocks in the United States and overseas appear to be growing more closely correlated as economies become more interdependent. suppose following population regression line connects the total annual returns (in percent) on two indexes stock that the of prices: MEAN OVERSEAS RETURN 4.2 o 63 U.S. RETURN (a) What is Ao in this line? Ao is the population slope, o.63. o po is the population intercept, 4.2. Po is the population intercept, o.63. Ao is the population slope, 4,2. what does this number say about overseas returns when the us. market is flat (ow return)? when the U.S. return is on This says that the mean overseas return is (b) What is A1 in this line?" Bh is the population intercept. 4.2. A1 is the population slope, 0-63. B1 is the population slope, 4.2. is the population intercept, o 63. what does this number say about the relationship between us. and overseas returns? This says that when the u s. return changes 1 the mean overseas return changes by

Explanation / Answer

Part-a

The 0 is the population intercept 4.2

This says that the mean overseas return is 4.2% when the US return is 0%

Part-b

The 1 is the population slope 0.63

This says that when the US return changes by 1%, th mean overseas return changes by 0.63%

Part-c

Yi=4.2 + 0.63 xi+ i

The part is i

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