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Measures the deviation from the best fitting line

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Reference no: EM132157786

Consider the following linear regression model:

Ri+Rf=ai+bi(Rmkt-Rf)+ei

The αi in the regression

a measures the deviation from the best fitting line and is zero on average.

b measures the sensitivity of the security to market risk.

c measures the historical performance of the security relative to the expected return predicted by the SML.

d measures the diversifiable risk in returns.

Reference no: EM132157786

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