Testing CAPM Essay Example | Topics and Well Written Essays - 1500 words

Testing CAPM - Essay ExampleFor better clarity in the results, the issuance of replications was set to 1500. The bias and the accuracy of the significance tests are provided below for each observation protect.From the above results, the bias for the YSeries is -0.331 and has a very low standard remainder of 0.008. The RMSE (Root Mean Square Error) is an absolute measure of the residuals. A low value indicates a better fit. The RMSE is relatively higher for the Intercept in comparison to the RMSE set for the XSeries and YSeries, suggesting that the latter two parameters exhibit a better absolute fit to the given data. The EDFs from the analysis is shown belowBased on the above results, X5% should be 1.96 for the nix hypothesis to be true. However, the upper tail quantiles in the subject of both variables (XSeries and YSeries(-1)) lead to the rejection of the null hypothesis since their 5% values exceed the critical value of 1.96.The null hypothesis in the case of both the variab les is that H0 = 0 for a given value 0 (sample mean). The alternative hypothesis in either case states that Ha 0, indicating a two tailed test.The power indicates the probability of rejecting the null hypothesis when the true mean differs from the hypothetical mean. From the above two cases, the power for YSeries(-1) is some(prenominal) greater than that for the XSeries indicating a greater probability for rejection of the null hypothesis in the case of the latter.The figure below shows the bias for the parameters when configured for 30 observations. It appears that the bias has reduce in the case of both estimators as a result of this increase in the number of observations (compared to the earlier simulation with 10 observations) indicating that the new estimates provide a better fit. The RMSE values have also reduced suggesting a similar conclusion. However, the higher RMSE value for the intercept indicates a comparatively lower fit with approve