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An analyst has run several regressions hoping to predict stock returns, and wants to translate this into an economic interpretation for his clients.
Return = 3.0 + 2.0Beta – 0.0001MarketCap (in billions) + εA correct interpretation of the regression most likely includes: A. a stock with zero beta and zero market capitalization will return precisely 3.0%. B. a billion dollar increase in market capitalization will drive returns down by 0.01%. C. prediction errors are always on the positive side. |