Fama and MacBeth (1973) Found That the Relationship Between Average

question 38

Multiple Choice

Fama and MacBeth (1973) found that the relationship between average excess returns and betas was

• A) linear.
• B) nonexistent.
• C) as expected, based on earlier studies.
• D) linear and as expected, based on earlier studies.
• E) Fama and MacBeth did not examine the relationship between excess returns and beta.

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Definitions:

Tax Deductibility

The ability to reduce taxable income through certain expenses or deductions, thus lowering the overall tax liability.

Embedded Debt Cost

The implicit interest cost contained within a leasing agreement, reflecting the leasing company's financing charges.

Cost of Equity

The return that investors expect for investing in a company's equity, representing the compensation for risk.