SCENARIO 13-7 An Investment Specialist Claims That If One Holds a Portfolio

question 132

Short Answer

SCENARIO 13-7
An investment specialist claims that if one holds a portfolio that moves in the opposite direction to the market index like the S&P 500,then it is possible to reduce the variability of the portfolio's return.In other words,one can create a portfolio with positive returns but less exposure to risk.
A sample of 26 years of S&P 500 index and a portfolio consisting of stocks of private prisons,which are believed to be negatively related to the S&P 500 index,is collected.A regression analysis was performed by regressing the returns of the prison stocks portfolio (Y)on the returns of S&P 500 index
(X)to prove that the prison stocks portfolio is negatively related to the S&P 500 index at a 5% level of significance.The results are given in the following EXCEL output.

-Referring to Scenario 13-7,to test whether the prison stocks portfolio is negatively related to the S&P 500 index,the p-value of the associated test statistic is

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Definitions:

Conditioned Stimulus

A previously neutral stimulus that, after becoming associated with an unconditioned stimulus, evokes a conditioned response.

Unconditioned Response

A spontaneous, innate response to a stimulus that happens without any previous conditioning or learning.

Operant Conditioning

An approach to education that utilizes incentives and penalties to shape behavior.

Instrumental Conditioning

A learning process in which an individual alters behavior due to the association of actions with punishments or rewards.