Question: 91 Refer to the discussion of beta values and market models in Problem 13.49 on pages 544-545. One hundred weeks of data, ending the week of May 22, 2006 for the S&P 500 and three individual stocks are included in the data file sp500.xls. Note that the weekly percentage change for both the S&P 500 and the individual stocks is measured as the percentage change from previous weeks closing value to the current weeks closing value. The variables included are:

Week – Current Week

SP500 – Weekly percentage change in the S&P 500 Index

WALMART – Weekly percentage change in stock price of Wal-Mart Stores, Inc

TARGET – Weekly percentage change in stock price of the Target Corporation

SARALEE – Weekly percentage change in stock price of the Sara Lee Corporation

a. Estimate the market model for Wal-Mart Stores Inc. (Hint: Use the percentage change in the S&P 500 Index as the independent variable and the percentage change in Wal-Mart Stores, Inc’s stock price as the dependent variable).

b. Interpret the beta value for Wal-mart Stores, Inc.

c. Repeat (a) and (b) for Target Corporation

d. Repeat (a) and (b) for Sara Lee Corporation

e. Write a brief summary of your findings.

Reference: Problem # 13.49

The volatility of a stock is often measured by its beta value. You can estimate the beta value of a stock by developing a simple linear regression model, using the percentage weekly change in the stock as the dependent variable and the percentage weekly change in a market index as the independent variable. The S&P 500 Index is a common index to use. For example, if you wanted to estimate the beta for IBM, you could use the following model, which is sometimes referred to as a market model:

(% weekly change in IBM) = β0 + β1 (% weekly change in S&P 500 index) + ?