Financial Risk Manager Part 1
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If the regression equation is 0.6330 + 0.0840(MCP) + 0.5101(SEF) + 0.7(FMR), then what is the expected amount of stock return that would be attributed to it being a listed stock?
Explanation:
Explanation
In the given regression equation:
- 0.6330 is the intercept (constant term)
- 0.0840(MCP) represents the coefficient for the MCP variable
- 0.5101(SEF) represents the coefficient for the SEF variable
- 0.7(FMR) represents the coefficient for the FMR variable
The question asks for "the expected amount of stock return that would be attributed to it being a listed stock." This refers to the coefficient of the variable that represents whether the stock is listed or not.
Since SEF likely represents the "Stock Exchange Factor" or similar indicator for being a listed stock, the coefficient 0.5101 directly represents the expected additional return attributed to the stock being listed, holding all other factors constant.
Therefore, the correct answer is 0.5101, which corresponds to option C.
Key Points:
- Regression coefficients represent the marginal effect of each variable on the dependent variable
- The SEF coefficient (0.5101) quantifies the additional return specifically due to the stock being listed
- This interpretation assumes SEF is a binary or categorical variable indicating listed status