A linear regression to estimate the relation between General Motors' stock returns and the market's return gives the best-fitting line that represents the relation between the stock and the market. The slope of this line is our estimate of ________.
A) alpha
B) beta
C) risk-free rate
D) volatility

Question

Quizplus · Accepted Answer

The slope of the best-fitting line represents the estimate of beta, which measures the sensitivity of a stock's returns to changes in the market's returns. Alpha represents the excess return of a stock beyond what is predicted by beta, and is not directly related to the slope of the regression line. The risk-free rate and volatility are not estimated by a linear regression analysis of stock returns.

A Linear Regression to Estimate the Relation Between General Motors