Posted: September 16th, 2016

Draw scatter plots of the two pairs of returns you will use for estimating the market models.

CASE STUDY TWO – continued
In the next stage of this study, you will estimate betas for the Apple stock vis-á-vis the US market using the data in the file called, “Apple Inc.xls”. You will need the returns you calculated from a previous tutorial. You will also use the two sub-periods you used before, that is, up to and including November 2007, and then from December 2007 onwards. In this analysis, you will treat Apple as the share and the Dow Jones Industrial average as the market.

(a) Draw scatter plots of the two pairs of returns you will use for estimating the market models.
(4 marks)

(b) For the two sets of returns in each of the two sub-periods, find the betas using the Market model:

Here the dependent variable is the ‘raw’ or ‘actual returns’ ( ) for the Apple stock and the independent variable is the ‘actual market returns’ ( ) on the Dow Jones Industrial average. Once you have estimated these betas use the ‘F’ statistic and the value of R2 to evaluate these estimated models. (4 marks)

(c) For both sub-periods, test to see whether the Apple stock is neutral or aggressive using  = 0.05. That is, test whether . (5 marks)

(d) For the first sub-period, estimate the Scholes-Williams Beta and Dimson’s Beta. Do you think you need to use this sort of adjustment here? (5 marks)

(e) Write some brief notes, in point form, describing your results for Case Study Two. Be sure to report any conclusions that you have made, and submit these. You will use them in a later tutorial when you write your final report. (2 marks)