Question

The nonzero slope coefficient test is used for a renowned financial application referred to as the capital asset pricing model (CAPM).The model y = α + βx + ɛ, is essentially a simple linear regression model that uses α and β, in place of the usual β0 and β1, to represent the intercept and the slope coefficients, respectively. Which of the following is true about the slope coefficient β, called the stock's beta?

Select that apply!
Multiple select question.
A. When β equals 0, any change in the market return leads to an identical change in the given stock return.
B. A stock for which β > 1 is considered more "aggressive" or riskier than the market
C. Measures how sensitive the stock's return is to changes in the level of the overall market
D. When β equals 1, any change in the market return leads to an identical change in the given stock return.

Answer 1

The slope coefficient β, called the stock's beta in the capital asset pricing model (CAPM), has specific characteristics that include sensitivity to market changes and risk assessment.

Step-by-step explanation:

The slope coefficient β, called the stock's beta in the capital asset pricing model (CAPM), has the following characteristics:

1. A. When β equals 0, any change in the market return leads to an identical change in the given stock return.
2. B. A stock for which β > 1 is considered more "aggressive" or riskier than the market.
3. C. Measures how sensitive the stock's return is to changes in the level of the overall market.
4. D. When β equals 1, any change in the market return leads to an identical change in the given stock return.