Quant Q

Seventy-two monthly stock returns for a fund between 1997 and 2002 are regressed against the market return, measured by the Wilshire 5000, and two dummy variables. The fund changed managers on January 2, 2000. Dummy variable one is equal to 1 if the return is from a month between 2000 and 2002. Dummy variable number two is equal to 1 if the return is from the second half of the year. There are 36 observations when dummy variable one equals 0, half of which are when dummy variable two also equals zero. The following are the estimated coefficient values and standard errors of the coefficients. Coefficient Market Dummy 1 Dummy 2 Value 1.43 0.00162 -0.00132 Standard error 0.319 0.000675 0.000733 What is the p-value for a test of the hypothesis that the beta of the fund is greater than 1? A) Lower than 0.01. B) Between 0.01 and 0.05. C) Greater than 0.10. D) Between 0.05 and 0.10.

Ruhi posted this one up yesterday. http://www.analystforum.com/phorums/read.php?12,682315

They are similarily worded, but different questions

So…this is a test of H_o: Market coefficient > 1 ? If so, it has a t-stat of 4.4828 with 60 dof, making the answer A. I could be misreading the question though…

So i get 1.43-1/.319 = 1.34796 t stat 1 tailed test 68 df so i think the answer is D.

You forgot to subtract off the hypothesized value. So this is (essentially) a Z-test with Z=(1.43 - 1)/0.319 = 1.34. It’s a one sided test, so P-Value = P(Z > 1.34). P(Z > 1.28) = 0.1 so this is some number slightly less than 0.1. Answer = D) Edit: Overlapped with cfaf1. Good answer.

Your answer: C was incorrect. The correct answer was D) Between 0.05 and 0.10. The beta is measured by the coefficient of the market variable. The test is whether the beta is greater than 1, not zero, so the t-statistic is equal to (1.43 - 1) / 0.319 = 1.348, which is in between the t-values (with 72 - 3 - 1 = 68 degrees of freedom) of 1.29 for a p-value of 0.10 and 1.67 for a p-value of 0.05.

I screwed this question up by looking at the values for the two tailed test