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  1. business
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  3. consider the following regression model for excess

Consider the following regression model for excess returns on an asset i: Zit=\alpha...

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Accounting

Consider the following regression model for excess returns on an asset i:
Zit=\alpha i+\beta imZmt+\epsi it;\epsi itiidN(0,\sigma 2\epsi )
where Zi=RiRf,Zm=RmRf,Ri
is the return on the asset i,Rf is the return on a risk-free asset, Rm is the return on the market portfolio. Which of the following is true for testing the capital asset pricing model (CAPM)?
a. We can use the CAPM to test for the implication that the excess market return is negative
b. To run a t-test, first we run the regression, then we collect \beta ^im
and we divide this by \alpha ^i
c. The ratio that results from a t-test is not normally distributed asymptotically
d. None of the options
e. The CAPM assumes that \alpha i is 0.5

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