Regression Analysis and Inference for BHP Stock

TASK 3 REGRESSION
ANALYSIS AND
INFERENCE

ii. Reporting the regression results in equation form
Y = a + bx
a = intercept = -0.011
b = Slope = 0.99
x = excess market return
y = excess return of preferred stock that is, BHP
Therefore, the regression equation would be as follows:
Y excess return on BHP = -0.011 + 0.99Xexcess market return
iii. Interpretation of estimated CAPM beta coefficient or slope coefficient
Through the regression equation, the slope coefficient identified as 0.99 which entails that with
the 1US dollar changes in market would led to 0.99 UD dollar changes in the price or returns of
BHP stock. A beta lower than 1 means the stock would be having less variation as compared to
the market and accordingly it is considered as less risky than the market.
iv. Interpretation of 95% confidence interval for the slope coefficient
Identified 95% confidence interval = [0.968, 1.017]
Therefore, it can be interpreted that with the one-point increase in the prices or return of market
that is, NSDQ, the increase in the prices or returns of the stock of BHP would fall between 0.968
and 1.017 points.
v. Interpretation of coefficient of determination
The identified value of coefficient of determination is 0.991 which entails that a 99.1% change in
dependent variable (excess returns on BHP stock) can be explained through the change in
independent variable (excess market return).
vi.
Null hypothesis: The value of Beta would be less than or equal to 1.
Alternative hypothesis: The value of Beta would be greater than 1.