SCENARIO 12-7
an Investment Specialist Claims That If One Holds

question 124

Short Answer

SCENARIO 12-7
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. $$\begin{array} { l r r r r } \hline & \text { Coefficients } & { \text { StandardError } } & { \text { T Stat } } & { P \text {-value } } \\\hline \text { Intercept } & 4.8660 & 0.3574 & 13.6136 & 0.0000 \\\text { S\&P } & - 0.5025 & 0.0716 & - 7.0186 & 0.0000 \\\hline\end{array}$$
-Referring to Scenario 12-7, 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:

Pairs of Shoes

A unit of measure often used in economics or retail to discuss the quantity of shoes, indicative of inventory levels or sales volumes.

Domestic Price

The price of goods or services within a country's borders, as opposed to international or export prices.

Trade Price

The price at which goods are sold between companies, typically lower than retail prices due to the absence of retailer markup.

Domestic Production

The total output of goods and services produced by a nation's economy within its territory.