Month Monthly Returns (%) Month Monthly Returns (%) Month Monthly Returns (%) En

Question

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Dec-07

-13.241

-0.219

-0.692

Dec-06

-5.442

-5.018

1.403

Dec-05

-2.610

2.457

0.036

Nov-07

-13.794

-1.980

-4.182

Nov-06

2.544

1.767

1.899

Nov-05

8.818

8.806

3.778

Oct-07

15.861

24.632

1.590

Oct-06

4.193

18.534

3.257

Oct-05

9.249

17.595

-1.668

Sep-07

18.093

10.096

3.736

Sep-06

-12.314

6.174

2.575

Sep-05

1.561

10.650

0.810

Aug-07

-2.237

1.029

1.497

Aug-06

6.227

-2.087

2.376

Aug-05

-0.060

-0.612

-0.912

Jul-07

-14.302

-2.430

-3.097

Jul-06

-17.758

-7.805

0.616

Jul-05

-3.781

-2.172

3.717

Jun-07

-5.470

4.979

-1.660

Jun-06

4.463

12.778

0.133

Jun-05

-6.855

6.088

0.143

May-07

2.354

5.628

3.486

May-06

-3.630

-11.035

-2.875

May-05

7.826

26.032

3.179

Apr-07

-10.387

2.885

4.428

Apr-06

1.612

7.164

1.342

Apr-05

1.770

21.877

-1.896

Mar-07

1.393

1.938

1.116

Mar-06

0.624

7.551

1.244

Mar-05

5.051

-3.979

-1.769

Feb-07

9.007

-10.379

-1.950

Feb-06

-6.735

-16.188

0.271

Feb-05

-8.350

-3.900

2.103

Jan-07

10.846

8.908

1.511

Jan-06

-12.264

4.291

2.648

Jan-05

-6.555

1.468

-2.437

Segregate the return data in the above table into bull and bear markets, using the S&P 500 index as the proxy for the market. a) What was the average return for the two companies during these two types of markets? What was the return for the S&P 500 index during those times? b) Using the average return measures in a), compute the beta for Yahoo and Google.

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Dec-07

-13.241

-0.219

-0.692

Dec-06

-5.442

-5.018

1.403

Dec-05

-2.610

2.457

0.036

Nov-07

-13.794

-1.980

-4.182

Nov-06

2.544

1.767

1.899

Nov-05

8.818

8.806

3.778

Oct-07

15.861

24.632

1.590

Oct-06

4.193

18.534

3.257

Oct-05

9.249

17.595

-1.668

Sep-07

18.093

10.096

3.736

Sep-06

-12.314

6.174

2.575

Sep-05

1.561

10.650

0.810

Aug-07

-2.237

1.029

1.497

Aug-06

6.227

-2.087

2.376

Aug-05

-0.060

-0.612

-0.912

Jul-07

-14.302

-2.430

-3.097

Jul-06

-17.758

-7.805

0.616

Jul-05

-3.781

-2.172

3.717

Jun-07

-5.470

4.979

-1.660

Jun-06

4.463

12.778

0.133

Jun-05

-6.855

6.088

0.143

May-07

2.354

5.628

3.486

May-06

-3.630

-11.035

-2.875

May-05

7.826

26.032

3.179

Apr-07

-10.387

2.885

4.428

Apr-06

1.612

7.164

1.342

Apr-05

1.770

21.877

-1.896

Mar-07

1.393

1.938

1.116

Mar-06

0.624

7.551

1.244

Mar-05

5.051

-3.979

-1.769

Feb-07

9.007

-10.379

-1.950

Feb-06

-6.735

-16.188

0.271

Feb-05

-8.350

-3.900

2.103

Jan-07

10.846

8.908

1.511

Jan-06

-12.264

4.291

2.648

Jan-05

-6.555

1.468

-2.437

Explanation / Answer

Beta Calculation

In excel, Beta (Yahoo) = COVARIANCE.P(Yahoo Returns, S&P500 Returns)/ VAR.P(S&P500 Returns) = 0.987

Similarly, Beta (Google) = 1.216

If you are looking for their betas in bear and bull markets,

Bear Market: Beta (Yahoo) = 2.52; Beta (Google) = 1.214

Bull Market: Beta (Yahoo) = 1.29; Beta (Google) = 1.75

Bear Market Bull Market Month Yahoo Google S&P500 Month Yahoo Google S&P500 Jan-05 -6.555 1.468 -2.437 Feb-05 -8.35 -3.9 2.103 Mar-05 5.051 -3.979 -1.769 May-05 7.826 26.032 3.179 Mar-05 5.051 -3.979 -1.769 Jun-05 -6.855 6.088 0.143 Apr-05 1.77 21.877 -1.896 Jul-05 -3.781 -2.172 3.717 Oct-05 9.249 17.595 -1.668 Sep-05 1.561 10.65 0.81 May-06 -3.63 -11.035 -2.875 Nov-05 8.818 8.806 3.778 Feb-07 9.007 -10.379 -1.95 Dec-05 -2.61 2.457 0.036 Aug-05 -0.06 -0.612 -0.912 Jan-06 -12.264 4.291 2.648 Jul-07 -14.302 -2.43 -3.097 Feb-06 -6.735 -16.188 0.271 Oct-05 9.249 17.595 -1.668 Mar-06 0.624 7.551 1.244 Dec-07 -13.241 -0.219 -0.692 Apr-06 1.612 7.164 1.342 Average 0.14445455 2.354727 -1.8848182 Jun-06 4.463 12.778 0.133 Jul-06 -17.758 -7.805 0.616 Aug-06 6.227 -2.087 2.376 Sep-06 -12.314 6.174 2.575 Oct-06 4.193 18.534 3.257 Nov-06 2.544 1.767 1.899 Dec-06 -5.442 -5.018 1.403 Jan-07 10.846 8.908 1.511 Mar-07 1.393 1.938 1.116 Apr-07 -10.387 2.885 4.428 May-07 2.354 5.628 3.486 Aug-07 -2.237 1.029 1.497 Sep-07 18.093 10.096 3.736 Oct-07 15.861 24.632 1.59 Average -0.09272 5.20952 1.95576

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