Significance of low value of r-square in regression

Assignment Help Finance Basics

Reference no: EM1333255

Capital Asset Pricing Model (CAPM) is used to calculate the required return from a stock. To calculate the required return from ABC stock, a regression was run between the S&P Index daily retun over risk free rate and ABC daily returns over risk free rate on the historical data for 500 days. The R square value of the regression is 20%. What does this value represent. What does a low value of R square mean. Could you find some possible reasons for low R sqaure. Since the R square value is only 20%, can we conclude CAPM is not a good model to calculate the required rate of return.

Reference no: EM1333255

Questions Cloud

Find sql statements and screenshots of the result : Any other information you would like to retrieve from the database.

Copyright procedure to register and employment at will : What is a copyright? What is the procedure to register a copyright? How is a copyright different from a patent?

Find the expected time : A time was set at 0.20 hour per unit based on the fifty unit produced. Find the expected time for the 100th, 200th, and 400th units?

Joining marketsplace or developing countries across world : Joining marketsplace or developing countries across the world has presented attractive opportunities to global companies and thus, boosted FDI.

Significance of low value of r-square in regression : Capital Asset Pricing Model (CAPM) is used to calculate the required return from a stock. To calculate the required return from ABC stock, a regression was run between the S&P Index daily retun over risk free rate.

Computing costs pertinent economic decision making : Which costs are pertinent to economic decision making? Which costs are not relevant?

Explain what you have learned in this assignment : In this case assignment, you will write the SQL statement to work on the community library database. Following are the tasks you are necessary to perform.

Any comapny in an industry to earn a profit : Describe the factors in Michael Porter's "Five Forces Model" that affect the ability of any comapny in an industry to earn a profit.

Calculating theoretical stock price of ibm : Recalculate IBM's stock using the P/E ratio model and the needed info found in the IBM pdf file. Explain why the present stock price is different from the price arrived at using CGM (Constant Growth Model).

User Account

All Pages