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Scatter graph of S&P 500 vs WMT, beta and risk premium

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See attached data files.

1. Prepare a scatter graph of S&P 500 vs. WMT, add the trend line and estimated equation. What is Beta estimate for WMT based on the equitation you've got?

2. Run regression of WMT risk premium vs. S&P 500 risk premium:

RPWMT = α + βi (RPS&P 500) + εi

a. What is your Beta estimate? Compare to part 1 Beta estimate.
b. What is R2? Explain, what does it tell you?
c. What is P-value? Explain, what does it tell you?
d. Write out the resulting regression for WMT risk premium estimate.

3. Run regression of WMT risk premium vs. S&P 500 risk premium and Consumer Sentiment Index:

RPWMT = α + β1i (RPS&P 500) + β2i (CSI) + εi

Write out the resulting regression for WMT risk premium estimate.
4. Run regression of WMT risk premium vs. S&P 500 risk premium and Disposable Personal Income (Scaled):

RPWMT = α + β1i (RPS&P 500) + β2i (DPI) + εi

Write out the resulting regression for WMT risk premium estimate.

5. Run regression of WMT risk premium vs. S&P 500risk premium, Consumer Sentiment Index and Disposable Personal Income (Scaled):

RPWMT = α + β1i (RPS&P 500) + + β2i (CSI) + β3i (DPI) + εi

Write out the resulting regression for WMT risk premium estimate.

6. Out of 4 regressions, which one is the best and why? (List 2 reasons with explanations).

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Solution Summary

A scatter graph of S&P 500 versus WMT, beta and risk premiums are examined.

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Prepare a scatter graph of S&P 500 vs. WMT, add the trend line and estimated equation. What is Beta estimate for WMT based on the equitation you've got?
Solution:

The trend line equation is given as:
y=0.2695x-0.0026
The Beta estimate for WMT based on the trend line equation is 0.2695.

Run regression of WMT risk premium vs. S&P 500risk premium:

〖RP〗_WMT = α + βi (〖RP〗_(S&P 500)) + εi

What is your Beta estimate? Compare to part 1 Beta estimate.
What is R2? Explain, what does it tell you?
What is P-value? Explain, what does it tell you?
Write out the resulting regression for WMT risk premium estimate.

Solution:
Beta estimate = 0.2695. This is same as the Beta estimate in part 1. ...

Solution provided by:
Anwesha Ghosh, MSc
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  • MSc, Indian Institute of Technology - Roorkee (I.I.T.-ROORKEE)
  • BSc, Banaras Hindu University
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