You fit a CAPM that regresses the excess return of

Serotoninl7

Serotoninl7

Answered question

2021-11-25

You fit a CAPM that regresses the excess return of Coca-cola on the excess market return using 20 years of monthly data. You estimate α=0,72,β=1,37,S2=20,38,σX2=19,82 and μx=0,71.
What is the 99% confidence interval for β?

Answer & Explanation

Lupe Kirkland

Lupe Kirkland

Beginner2021-11-26Added 21 answers

Step 1
Sample Statistic = Slope of Regression i.e. β
β=1.37, 99% confidence interval, n=20
α=1(Confidence interval100)
=1(99100)
Degree of freedom (df)=n2
=202
=18
As per the t distribution table, the critical value at df 18 is 2.552.
Standard Error or Standard Deviation =19.82=4.45197
Margin of Error=Critical value×Standard Error
=2.552×4.45197
=11.36142
Step 2
Confidence Interval =Sample Statistic±Margin of Error
=1.37±11.36142
Upper Interval=1.37+11.36412=12.73142
Lower Interval=1.3711.36412=9.99412
Therefore, 99% confidence interval is -9.99412 to 12.73142

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