Measure of the nonsystematic variance of the stock

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Consider the regression equation: ri- rf= g0+ g1bi+ g2s2(ei) + eit where: ri- rt= the average difference between the monthly return on stock i and the monthly risk-free rate

bi= the beta of stock i

s2(ei) = a measure of the nonsystematic variance of the stock i

If you estimated this regression equation and the CAPM was valid, you would expect the estimated coefficient, g2 to be

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Reference no: EM132892671

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