The beta of a stock is found by running a regression with the monthly return on a market index as the explanatory variable and the monthly return on the stock as the dependent variable. The beta of the stock is then the slope of this regression equation.a. Explain why most stocks have a positive beta.b. Explain why a stock with a beta with absolute value greater than 1 is more volatile than the market, and a stock with a beta with absolute value less than 1 is less volatile than the market.c. Use the data in the file P16_45.xlsx to estimate the beta for Ford Motor Company.d. What percentage of the variation in Ford’s return is explained by market variation? What percentage is unexplained by market variation?
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