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Estimating risk. Suppose that the single-index model (i.e., market model) for stocks A and Bis...

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Finance

Estimating risk. Suppose that the single-index model (i.e., market model) for stocks A and Bis estimated from excess returns with the following results:

=2.8%+1+

=1%+1.3+

Further, we know that the volatility of market return is 18%, the 2 of the first regression (for stock A) is 0.27 and the 2 of the second regression (for stock B) is 0.13. What is the total volatility of each stock?

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Estimating risk (40p). Suppose that the single-index model (i.e., market model) for stocks A and B is estimated from excess returns with the following results: RA 2.8% + 1 x RM + EA RR = -1% + 1.3 x RM + eb Further, we know that the volatility of market return is 18%, the R2 of the first regression (for stock A) is 0.27 and the R2 of the second regression (for stock B) is 0.13. What is the total volatility of each stock

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