How are returns on common stocks in overseas markets related to returns in one c

Question

How are returns on common stocks in overseas markets related to returns in one countries markets? Consider measuring the countries returns by the annual rate of return on the index A and overseas returns by the annual rate of return on index B. Both are recorded in percents. We will regress the B returns on the A returns for the years 1987 to 2014. Here is part of the output for this regression. The regression equation is

B = 3.17 + 0.815A.

Complete the analysis of variance table by filling in the missing boxes. (Round your answer for F to two decimal places and your answers for SS and MS to one decimal place.)

Analysis of Variance Source DF SS MS F Regression 1 5552.5 Residual Error Total 10077.9

Explanation / Answer

Hence, the ANOVA table:

The F ratio = 31.9

F ratio follows F with df = (1, 26)

Source DF SS MS F Regression 1 5552.5 5552.5/1 = 5552.5 5552.5/174.0538 = 31.90105 Residual error 27 - 1 = 26 10077.9 - 5552.5 = 4525.4 4525.4/26 = 174.0538 Total n-1 = 27 10077.9 10077.9/27 = 373.2556

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