ADMS 4501 Lecture Notes - Lecture 10: Sharpe Ratio, Capital Asset Pricing Model, Expected Return
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5.. Consider the two (excess return) index-model regression results for stocks A and B. The riskfree rate over the period was 8%, and the marketâs average return was 16%. Performance is measured using an index model regression on excess returns. |
Stock A | Stock B | ||||||||||
Index model regression estimates | 1% + 1.2(rM â rf) | 2% + .8(rM â rf) | |||||||||
R-square | 0.677 | 0.487 | |||||||||
Residual standard deviation, Ï(e) | 12% | 20.8% | |||||||||
Standard deviation of excess returns | 23.3% | 28.3% | |||||||||
Calculate the following statistics for each stock: (Round your answer to 4 decimal places. Omit the "%" sign in your response.) |
Stock A | Stock B | ||||||||||
i. | Alpha | 1 | % | 2 | % | ||||||
ii. | Information ratio | ______? | ______? | ||||||||
iii. | Sharpe measure | ______? | ______? | ||||||||
iv. | Treynor measure | 8.8330 | 10.500 | ||||||||
(((NUMBERS BELOW ARE NOT THE CORRECT ANSWERS)))
Information Ratio = Alpha/Standard deviation residual
For stock A, = 1/10.3 = 0.0971 For stock B, = 2/19.1 = 0.1047
Sharpe Measure = Excess returns / Standard deviation of excess returns
For stock A, = (1+1.2*(16-8))/21.6 = 0.4907 For stock B, = (2+0.8*(16-8))/24.9 = 0.3373
5. Consider the two (excess return) index-model regression results for stocks A and B. The riskfree rate over the period was 8%, and the marketâs average return was 16%. Performance is measured using an index model regression on excess returns.
Stock A | Stock B | ||||||||||
Index model regression estimates | 1% + 1.2(rM â rf) | 2% + .8(rM â rf) | |||||||||
R-square | 0.677 | 0.487 | |||||||||
Residual standard deviation, Ï(e) | 12% | 20.8% | |||||||||
Standard deviation of excess returns | 23.3% | 28.3% | |||||||||
Calculate the following statistics for each stock: (Round your answer to 4 decimal places. Omit the "%" sign in your response.) |
Stock A | Stock B | ||||
i. | Alpha | __________ | %? | _________ | %? |
ii. | Information ratio | __________ | ? | ________? | |
iii. | Sharpe measure | __________ | ? | ________? | |
iv. | Treynor measure | __________ | ? | ________? |
Consider the two (excess return) index-model regression results for stocks A and B. The riskfree rate over the period was 5%, and the marketâs average return was 14%. Performance is measured using an index model regression on excess returns. |
Stock A | Stock B | ||||||||||
Index model regression estimates | 1% + 1.2(rM â rf) | 2% + .8(rM â rf) | |||||||||
R-square | 0.611 | 0.454 | |||||||||
Residual standard deviation, Ï(e) | 10.9% | 19.7% | |||||||||
Standard deviation of excess returns | 22.2% | 26.1% | |||||||||
a. | Calculate the following statistics for each stock: (Round your answer to 4 decimal places. Omit the "%" sign in your response.) |
Stock A | Stock B | ||||||||||
i. | Alpha | % | % | ||||||||
ii. | Information ratio | ||||||||||
iii. | Sharpe measure | ||||||||||
iv. | Treynor measure | ||||||||||