ECON 438 Study Guide - Final Guide: Kevin Harvick, Zip Code, Simple Linear Regression
Managerial report for case studies
Chapter 14 15
GBU 3311 02
Laguejemt Asma
Jeoual Rania
GBU 3311 02 December 1, 2017
Contents
Chapter 14: Simple Linear Regression ............................. 3
Case Problem 1: Measuring Stock Market Risk ............. 3
Case Problem 2: U.S. Department of Transportation ..... 8
Case Problem 3Selecting a Point-and-Shoot Digital
Camera .......................................................................... 11
Case Problem 4Finding the Best Car Value ................. 15
Case Problem 5Buckeye Creek Amusement Park ........ 22
Chapter 15: Multiple Regression .................................... 25
Case Problem 1Consumer Research, Inc. ..................... 25
Case Problem 2Predicting Winnings for NASCAR
Drivers .......................................................................... 28
Case Problem 3Finding the Best Car Value ................. 33
GBU 3311 02 December 1, 2017
Chapter 14: Simple Linear Regression
Case Problem 1: Measuring Stock Market Risk
One measure of the risk or volatility of an individual stock is the standard deviation of the total
return (capital appreciation plus dividends) over several periods of time. Although the standard
deviation is easy to compute, it does not take into account the extent to which the price of a
given stock varies as a function of a standard market index, such as the S&P 500. As a result,
many financial analysts prefer to use another measure of risk referred to as beta.
Betas for individual stocks are determined by simple linear regression. The dependent variable
is the total return for the stock and the independent variable is the total return for the stock
market. For this case problem we will use the S&P 500 index as the measure of the total return
for the stock market, and an estimated regression equation will be developed using monthly
data. The beta for the stock is the slope of the estimated regression equation. The data contained
in the file named Beta provides the total return (capital appreciation plus dividends) over 36
months for eight widely traded common stocks and the S&P 500.
The value of beta for the stock market will always be 1; thus, stocks that tend to rise and fall
with the stock market will also have a beta close to 1. Betas greater than 1 indicate that the
stock is more volatile than the market, and betas less than 1 indicate that the stock is less
volatile than the market. For instance, if a stock has a beta of 1.4, it is 40% more volatile than
the market, and if a stock has a beta of .4, it is 60% less volatile than the market.
Managerial Report
You have been assigned to analyze the risk characteristics of these stocks. Prepare a report that
includes but is not limited to the following items.
1. Compute descriptive statistics for each stock and the S&P 500. Comment on your results.
Which stocks are the most volatile?
