For a sample of 20 monthly observations a financial analyst wants to regress the

Question

For a sample of 20 monthly observations a financial analyst wants to regress the percentage rate of return (Y) of the common stock of a corporation on the percentage rate of return (X) of the Standard and Poor's 500 index. The following information is available:

a) Estimate the linear regression of Y on X.

b) Interpret the slope of the sample regression line.

c) Interpret the intercept of the sample regression line.

I have the textbook answer but I'm not sure how they got there; can anyone help me with this question?? Thank you!!

Explanation / Answer

a) its a bivariate regressoin of the form Yi = + Xi + ui

where is the intercept term, is the slope term and ui is the random disturbance term

= xiyi/xi2

= 150.5/145.7

= 1.03

= Yi/20 - *Xi/20 since number of observations are 20

for interpreting and you need to take out the standard error of both and then compute the value of t-stat given by t=/S.E.() and t = /S.E.() then from the table look at the probability value to find out whether the computed value is greater then the table value or not at the chosen lavel of significance whether 1%,5% or 10%. if computed value is greater then the table value we say that or whichever is concerned is atatistically significant elso not. this is how we interpret the results and check the statistical significance of the parameters and

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