Get Instant Help From 5000+ Experts For
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing:Proofread your work by experts and improve grade at Lowest cost

And Improve Your Grades
myassignmenthelp.com
loader
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Guaranteed Higher Grade!
Free Quote
wave
Question:
Discuss about the Econometrics for Stocks of Microsoft Outperforms.

 
Answer:
1. Stocks of Microsoft outperforms or under performs in the market.

Solution

A stock can be identified as underperformed stock or out performed stock based on the value of alpha of the regression equation. On performing the regression equation of the stocks of Microsoft from January 1998 to December 2008, the following solution was observed.

SUMMARY OUTPUT

             

Regression Statistics

             

Multiple R

0.584179

             

R Square

0.341265

             

Adjusted R Square

0.336197

             

Standard Error

0.089101

             

Observations

132

             

ANOVA

               

 

df

SS

MS

F

Significance F

     

Regression

1

0.534676

0.534676

67.34784

1.94E-13

     

Residual

130

1.032074

0.007939

         

Total

131

1.56675

 

 

 

     

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

0.008773

0.007755

1.131246

0.260034

-0.00657

0.024116

-0.00657

0.024116

rm-rf

1.320997

0.160968

8.206573

1.94E-13

1.002541

1.639454

1.002541

1.639454

Table 1: Output of regression equation of the stocks of Microsoft

(Source: created by author)

The value of alpha of this regression equation is 0.008773, which is greater than 0. Since the value of alpha greater than zero indicates that the stock outperforms consistently, it could be interpreted that the stocks of Microsoft outperforms consistently.

2.

Evaluation of the claim that Microsoft is an aggressive stock

Solution

A stock is said to be an “aggressive stock” when the beta value of the stock is greater than one as the variation of the stock is more. The stock is said to be a defensive stock when the beta value of the stock is less than one as the variation of the stock is less. In the regression equation of the stocks of Microsoft from January 1998 to December 2008, it was seen that the value of beta was 1.320997, which is greater than one (Seber and Lee 2012). Thus, it can be interpreted that the stocks of Microsoft (a Tech stock) is an aggressive stock as the beta value of this stock is greater than one.

3.

Evaluation of the claim that the stocks of Mobil-Exxon are a defensive stock

Solution

A stock is said to be a defensive stock if the beta value of the stock is less than one which indicates that the variation of the stock is less. On performing regression equation of the stocks of Mobil-Exxon (xom), the following result had been found.

SUMMARY OUTPUT

             

Regression Statistics

             

Multiple R

0.376656

             

R Square

0.14187

             

Adjusted R Square

0.135269

             

Standard Error

0.049673

             

Observations

132

             

ANOVA

               

 

df

SS

MS

F

Significance F

     

Regression

1

0.053029

0.053029

21.49221

8.53E-06

     

Residual

130

0.320757

0.002467

         

Total

131

0.373786

 

 

 

     

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

0.010556

0.004323

2.441511

0.015971

0.002002

0.019109

0.002002

0.019109

rm-rf

0.416019

0.089737

4.63597

8.53E-06

0.238485

0.593554

0.238485

0.593554

Table 2: Output of Regression equation of the stocks of xom

(Source: created by author)

The value of beta coefficient of this regression equation is 0.416019, which is greater than one. This suggests that the variation of the stock is high (Cameron and Trivedi 2013). Thus, the claim that the stocks of Mobil-Exxon (xom) are defensive is not true. This is because the value of the stocks is not less than one.

4.

The table is filled as per the results of regression equation at 95% confidence interval for the stocks given.

SUMMARY OUTPUT (dis)

               

Regression Statistics

             

Multiple R

0.538186

             

R Square

0.289644

             

Adjusted R Square

0.28418

             

Standard Error

0.068417

             

Observations

132

             

ANOVA

               

 

df

SS

MS

F

Significance F

     

Regression

1

0.248122

0.248122

53.00681

2.83E-11

     

Residual

130

0.608522

0.004681

         

Total

131

0.856644

 

 

 

     

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

0.001526

0.005955

0.256295

0.798128

-0.01026

0.013307

-0.01026

0.013307

rm - rf

0.899889

0.123601

7.280578

2.83E-11

0.655358

1.144419

0.655358

1.144419

Table 3: Regression output table of “dis”

(Source: created by author)

SUMMARY OUTPUT (ge)

               

Regression Statistics

             

Multiple R

0.623297

             

R Square

0.388499

             

Adjusted R Square

0.383795

             

Standard Error

0.054897

             

Observations

132

             

ANOVA

               

 

df

SS

MS

F

Significance F

     

Regression

1

0.248906

0.248906

82.5917

1.45E-15

     

Residual

130

0.391781

0.003014

         

Total

131

0.640687

 

 

 

     

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

0.001509

0.004778

0.315749

0.7527

-0.00794

0.010962

-0.00794

0.010962

rm - rf

0.90131

0.099176

9.087997

1.45E-15

0.705103

1.097518

0.705103

1.097518

Table 4: Regression output table of “ge”

(Source: created by author)

SUMMARY OUTPUT (gm)

               

Regression Statistics

             

Multiple R

0.479893

             

R Square

0.230298

             

Adjusted R Square

0.224377

             

Standard Error

0.112137

             

Observations

132

             

ANOVA

               

 

df

SS

MS

F

Significance F

     

Regression

1

0.489115

0.489115

38.89646

5.8E-09

     

Residual

130

1.634723

0.012575

         

Total

131

2.123838

 

 

 

     

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

-0.00887

0.00976

-0.90923

0.364914

-0.02818

0.010435

-0.02818

0.010435

rm - rf

1.263461

0.202585

6.236702

5.8E-09

0.862671

1.664251

0.862671

1.664251

Table 5: Regression output table of “gm”

(Source: created by author)

SUMMARY OUTPUT (ibm)

               

Regression Statistics

             

Multiple R

0.636171

             

R Square

0.404714

             

Adjusted R Square

0.400135

             

Standard Error

0.070081

             

Observations

132

             

ANOVA

               

 

df

SS

MS

F

Significance F

     

Regression

1

0.43408

0.43408

88.38246

2.47E-16

     

Residual

130

0.63848

0.004911

         

Total

131

1.07256

 

 

 

     

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

0.008527

0.0061

1.397893

0.164526

-0.00354

0.020595

-0.00354

0.020595

rm - rf

1.190259

0.126607

9.401195

2.47E-16

0.939782

1.440736

0.939782

1.440736

Table 6: Regression output table of “ibm”

(Source: created by author)

SUMMARY OUTPUT (xom)

             

Regression Statistics

             

Multiple R

0.376656

             

R Square

0.14187

             

Adjusted R Square

0.135269

             

Standard Error

0.049673

             

Observations

132

             

ANOVA

               

 

df

SS

MS

F

Significance F

     

Regression

1

0.053029

0.053029

21.49221

8.53E-06

     

Residual

130

0.320757

0.002467

         

Total

131

0.373786

 

 

 

     

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

0.010556

0.004323

2.441511

0.015971

0.002002

0.019109

0.002002

0.019109

rm - rf

0.416019

0.089737

4.63597

8.53E-06

0.238485

0.593554

0.238485

0.593554

Table 7: Regression output table of “xom”

(Source: created by author)

SUMMARY OUTPUT (msft)

             

Regression Statistics

             

Multiple R

0.584179

             

R Square

0.341265

             

Adjusted R Square

0.336197

             

Standard Error

0.089101

             

Observations

132

             

ANOVA

               

 

df

SS

MS

F

Significance F

     

Regression

1

0.534676

0.534676

67.34784

1.94E-13

     

Residual

130

1.032074

0.007939

         

Total

131

1.56675

 

 

 

     

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

0.008773

0.007755

1.131246

0.260034

-0.00657

0.024116

-0.00657

0.024116

rm - rf

1.320997

0.160968

8.206573

1.94E-13

1.002541

1.639454

1.002541

1.639454

Table 8: Regression output table of “msft”

(Source: created by author)

The above finding would help to frame the table given below:

 

β^

95% Confidence Interval for β

 

 

Lower bound

Upper bound

Microsoft

1.3189

1.002541

1.639454

GE

0.8993

0.705103

1.097518

GM

1.2614

0.862671

1.664251

IBM

1.1882

0.939782

1.440736

Disney

0.8978

0.655358

1.144419

XOM

0.4140

0.238485

0.593554

Table 9: results of the estimation

(Source: created by author)

5.

Interpretation of 95% confidence interval of GE, GM, Disney in terms of their risk profile

Solution

The beta value of “GE” was found to be 0.8993. The lower bound of 95% confidence interval was found to be 0.705103 while the upper bound was found to be 1.097518. The value of beta was found to be less than one (Kleinbaum et al. 2013). This can be interpreted that there is less deviation in the stocks of GE, which shows that the stocks of GE is defensive. Also, the confidence interval of this stock have the lower bound in the defensive region and it eventually changes to aggressive region in the upper bound.

The beta value of the stocks of GM was found to be 1.2614. The value of the lower bound of 95% confidence interval is 0.8626 and the value of the upper bound is 1.664251. Since the beta value of the stock is greater than one, the stocks of GM are aggressive (Montgomery et al. 2015).

The beta value of the stocks of Disney was 0.8978, which is less than one. The lower bound of the 95% confidence interval is 0.655358 while the value of upper bound is 1.144419. The stocks of Disney are defensive as the value of beta is less than one. This indicates that there is less variation among the stocks of Disney.

6.

Choice of three stocks from the above

Solution

The investor seeks three stocks that have well diversified risk profiles. This indicates that the stocks must be aggressive and beta value of the chosen three stocks must be greater than one. This is because aggressive stocks indicate greater variation in the stocks which also indicates that the risk profiles are well diversified. From the above calculations it was seen Microsoft, GM and IBM are the three stocks that would be suitable for the investor. This is because the beta values of these three stocks are greater than one and they are aggressive stocks.

 
Part II

Explanation of expected excess returns of the stocks

Solution

The regression equation shows that the stocks of “dis” have the beta coefficient of 1.007 of the market premium. This shows that the stocks of “dis” would be influenced positively by the factor of 1.007 by market premium. The coefficient of size premium and value premium is given by -0.00041 and 0.002923 respectively. This indicates that the size premium would influence the stocks of “dis” negatively by a factor 0.00041 and value premium would influence if positively by a factor 0.002923.

The regression equation of “ge” shows that the value of coefficients of market premium, size premium and value premium are 0.9567, -0.00564, -0.00209. This shows that market premium influences the stocks of “ge” positively by a factor 0.9567 while the other two factors influence the stocks negatively by a factor of 0.00564 and 0.00209 respectively (Draper and Smith 2014).

The regression equation of “gm” shows that the value of coefficients of market premium, size premium and value premium are 1.57, -0.00082 and 0.008574 respectively. This shows that market premium and value premium influence the stocks of “gm” positively by a factor of 1.57 and 0.008574 respectively. The factor of size premium influences the stocks of “gm” negatively by a factor of -0.00082.

The regression equation of “ibm” shows that the value of coefficients of market premium, size premium and value premium are 1.1493, -0.00219, -0.00267. This shows that the factor of market premium influences the stocks of “ibm” positively by a factor of 1.1493 while size premium and value premium influence the stocks negatively by a factor of -0.00219 and -0.00267 respectively.

The regression equation of “msft” shows that the value of coefficients of market premium, size premium and value premium are 1.035, -0.00354 and -0.01084. This shows that the market premium influences the shares of “msft” positively by a factor of 1.035 while the size premium and the value premium influences the stocks negatively by a factor of -0.00354 and -0.01084 respectively (Draper and Smith 2014).

The regression equation of “xom” shows that the value of coefficients of market premium, size premium and value premium are 0.5490, -0.00175, and 0.002786. This shows that the market premium and value premium influences the stocks of “xom” positively by a factor of 0.5490 and 0.002786 respectively while the factor of size premium influence the stocks of “xom” negatively by a factor of 0.00175.

2.

Testing of hypothesis using f-test for “dis”

Solution

F-test was done for the variable “dis” to test the claim that “dis” is unrelated to size and value premium in context of the coefficients of Fama-French model. The hypothesis of this test is as follows:

H0 : “dis” is unrelated to size premium

H1 : “dis” is related to size premium

The table below provides the result of this f-test:

F-Test Two-Sample for Variances

   

 

dis

smb

Mean

0.001378697

0.308864

Variance

0.006539264

16.59104

Observations

132

132

df

131

131

F

0.000394144

 

P(F<=f) one-tail

0

 

F Critical one-tail

0.749410102

 

Table 10: f-test of “dis”and “smb”

(Source: created by author)

Here, the value of F is less than the critical value of F; i.e. 0.000394144 < 0.749410102. Since, the f value of the test is less than the critical F value, the “null hypothesis” is accepted and it can be interpreted that “dis” is unrelated to size premium.

The hypothesis of this F-test is as follows:

H0 : “dis” is unrelated to value premium

H1 : “dis” is related to value premium

The table below provides the result of this f-test:

F-Test Two-Sample for Variances

   

 

dis

hml

Mean

0.001378697

0.360606

Variance

0.006539264

14.18226

Observations

132

132

df

131

131

F

0.000461088

 

P(F<=f) one-tail

0

 

F Critical one-tail

0.749410102

 

Table 11: f-test of “dis”and “hml”

(Source: created by author)

The table shows that the F value of the test is 0.000461088, which is less than the critical value of F of the test 0.749410102. It shows that the “null hypothesis” is accepted and “dis” is unrelated to value premium.

3.

Hypothesis test of “xom” using f-test

Solution

Hypothesis test would be done in order to test the claim that the size and value premium do not affect the stocks of “xom” in context of the coefficients of Fama-French model. F-test would be used in this case. The following hypothesis would be given for this test.

H0 : “xom” is unrelated to value premium

H1 : “xom” is related to value premium

The table below provides the result of this f-test:

F-Test Two-Sample for Variances

   

 

xom

hml

Mean

0.010488

0.360606

Variance

0.002853

14.18226

Observations

132

132

df

131

131

F

0.000201

 

P(F<=f) one-tail

0

 

F Critical one-tail

0.74941

 

Table 12: f-test of “xom” and “hml”

(Source: created by author)

The table shows that the f value of the test is less than the critical value of the test; i.e. 0.000201 < 0.74941. This leads to the acceptance of “null hypothesis” and it can be interpreted that “xom” is unrelated to value premium.

The following hypothesis would be used to test the relationship between stocks of “xom” and the size premium.

H0 : “xom” is unrelated to size premium

H1 : “xom” is related to size premium

The table below provides the result of this f-test:

F-Test Two-Sample for Variances

   

 

xom

smb

Mean

0.010488

0.308864

Variance

0.002853

16.59104

Observations

132

132

df

131

131

F

0.000172

 

P(F<=f) one-tail

0

 

F Critical one-tail

0.74941

 

Table 13: f-test of “xom” and “smb”

(Source: created by author)

F-test shows that the f value of the test is 0.000172 and the critical value of the test is 0.74941 (Sen and Srivastava 2012). This shows that the F value of the test is less than the critical value. The “null hypothesis” is accepted in this case and “xom” is unrelated to size premium”.

4.

Hypothesis test of “msft” to test the claim that it has same sensitivity to the size premium and value premium in context of the coefficients of Fama-French model

Solution

F-test would be used to test the claim that it has same sensitivity to the size premium and value premium in context of the coefficients of Fama-French model. The hypothesis of the test is as follows:

H0 : “msft” is unrelated to size premium

H1 : “msft” is related to size premium

The table below provides the result of this f-test:

F-Test Two-Sample for Variances

   

 

msft

smb

Mean

0.008557

0.308864

Variance

0.01196

16.59104

Observations

132

132

df

131

131

F

0.000721

 

P(F<=f) one-tail

0

 

F Critical one-tail

0.74941

 

Table 14: f-test of “msft” and “smb”

(Source: created by author)

The f value of the test is 0.000721 which is less than the critical value of the test 0.74941. This leads to the acceptance of “null hypothesis” and “msft” is unrelated to size premium.

The hypothesis of the test is as follows:

H0 : “msft” is unrelated to value premium

H1 : “msft” is related to value premium

The table below provides the result of this f-test:

F-Test Two-Sample for Variances

   

 

msft

hml

Mean

0.008557

0.360606

Variance

0.01196

14.18226

Observations

132

132

df

131

131

F

0.000843

 

P(F<=f) one-tail

0

 

F Critical one-tail

0.74941

 

Table 15: f-test of “msft” and “hml”

(Source: created by author)

The f value of the test is 0.000843 and the critical value of the test is 0.74941 (Sanderson and Windmeijer 2016). The f value of the test is less than the critical value of the test. This leads to acceptance of “null hypothesis” and “msft” is unrelated to value premium.

 
References

Cameron, A.C. and Trivedi, P.K., 2013. Regression analysis of count data (Vol. 53). Cambridge university press.

Draper, N.R. and Smith, H., 2014. Applied regression analysis. John Wiley & Sons.

Kleinbaum, D.G., Kupper, L.L., Nizam, A. and Rosenberg, E.S., 2013. Applied regression analysis and other multivariable methods. Nelson Education.

Montgomery, D.C., Peck, E.A. and Vining, G.G., 2015. Introduction to linear regression analysis. John Wiley & Sons.

Sanderson, E. and Windmeijer, F., 2016. A weak instrument F-test in linear IV models with multiple endogenous variables. Journal of Econometrics, 190(2), pp.212-221.

Seber, G.A. and Lee, A.J., 2012. Linear regression analysis (Vol. 936). John Wiley & Sons.

Sen, A. and Srivastava, M., 2012. Regression analysis: theory, methods, and applications. Springer Science & Business Media.

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2017). Econometrics For Stocks Of Microsoft Outperforms. Retrieved from https://myassignmenthelp.com/free-samples/econometrics-stocks-of-microsoft-outperforms.

"Econometrics For Stocks Of Microsoft Outperforms." My Assignment Help, 2017, https://myassignmenthelp.com/free-samples/econometrics-stocks-of-microsoft-outperforms.

My Assignment Help (2017) Econometrics For Stocks Of Microsoft Outperforms [Online]. Available from: https://myassignmenthelp.com/free-samples/econometrics-stocks-of-microsoft-outperforms
[Accessed 14 July 2024].

My Assignment Help. 'Econometrics For Stocks Of Microsoft Outperforms' (My Assignment Help, 2017) <https://myassignmenthelp.com/free-samples/econometrics-stocks-of-microsoft-outperforms> accessed 14 July 2024.

My Assignment Help. Econometrics For Stocks Of Microsoft Outperforms [Internet]. My Assignment Help. 2017 [cited 14 July 2024]. Available from: https://myassignmenthelp.com/free-samples/econometrics-stocks-of-microsoft-outperforms.

Get instant help from 5000+ experts for
question

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing: Proofread your work by experts and improve grade at Lowest cost

loader
250 words
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Plagiarism checker
Verify originality of an essay
essay
Generate unique essays in a jiffy
Plagiarism checker
Cite sources with ease
support
Whatsapp
callback
sales
sales chat
Whatsapp
callback
sales chat
close