How is the market risk of a company stock estimated

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Reference no: EM132179284

Project -

This is the beta project, and it will require you to run 35 regressions and explain the results. Your basic research questions are the following:

(1) How is the market risk of a company's stock estimated?

(2) How do the betas of companies in different (the same) industries (industry) compare?

(3) How do weekly estimated betas compare to daily estimated betas for the same company?

(4) Are company betas constant through time? (5) Are the estimated betas reliable (can you reject the null)?

Following are the steps to take for the analysis:

1. Select five companies to analyze not including IBM. Four of these companies must be from different industries, while the fifth company must be in the same industry as one of the other four.

2. Collect introductory descriptive information about each company including major business units and the industries in which each operates.

3. Collect five years of daily and weekly stock price data for all five companies, as well as for BlackRock's exchange traded fund (ETF) designed to mimic the Russell 3000 (iShares).

4. Estimate one beta for your five companies using five years of weekly data. This will require you to run one regression for each company for a total of five.

5. Estimate one beta for each of your five companies using five years of daily data. Therefore, one regression per company for a total of five.

6. Estimate five betas for each of your five companies using rolling 1-year periods (about 252 trading days is one year). This will require you to run five regressions for each company for a total of twenty-five.

7. Your write-up will include at least the following:

a. Introduction of your project, including your main findings and an explanation of what beta measures in the context of equity investing.

b. Short description of your selected companies, including their industries.

c. Explanation of your method in estimating beta including data collection and any data manipulation (see above).

d. Explanation of the following statistics for the regression in bullet point 4 above: R2, estimated alpha and beta and their standard errors, t-statistics, and p-values. Be sure to write out the estimated regression equation. Include a printout for this regression as an appendix to your paper.

e. Between-company comparisons of the estimated daily and weekly betas including a discussion of why you think the betas for the companies are different or similar to each other. Are the estimated betas reliable? Include all the statistics necessary to support your comparison.

f. Within-company comparisons of the estimated betas between weekly versus daily data for each of the five companies. Are the estimated betas reliable? Include discussion of appropriate statistics.

g. Within-company comparisons of the estimated daily betas across the five one-year periods for each of the five companies including a discussion about whether the estimated betas are constant through time. Are the estimated betas reliable? Include discussion of important statistics.

h. Summary of your findings regarding the four research questions mentioned above.

Reference no: EM132179284

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