QUESTION

Country Stock Indices Excel

			Monthly stock returns (USD denominated)
			January 1988 – December 2005
Date	World	Belgium	Brazil	Germany	Russia	USA
12/2005	0.022	0.044	-0.010	0.041	0.047	0.001
11/2005	0.034	0.023	0.089	0.035	0.083	0.040
10/2005	-0.024	-0.025	-0.060	-0.031	-0.078	-0.016
9/2005	0.026	0.013	0.191	0.023	0.169	0.009
8/2005	0.008	0.014	0.111	0.003	0.142	-0.009
7/2005	0.035	0.043	0.040	0.070	0.109	0.038
6/2005	0.009	0.004	0.039	0.009	0.035	0.003
5/2005	0.019	-0.009	0.078	0.021	0.017	0.033
4/2005	-0.021	-0.029	-0.041	-0.043	0.009	-0.018
3/2005	-0.019	-0.012	-0.086	-0.023	-0.078	-0.016
2/2005	0.032	0.054	0.175	0.041	0.112	0.021
1/2005	-0.022	-0.020	-0.024	-0.039	0.030	-0.025
12/2004	0.038	0.048	0.097	0.054	-0.035	0.035
11/2004	0.053	0.065	0.104	0.088	-0.062	0.041
10/2004	0.025	0.059	0.018	0.041	0.046	0.015
9/2004	0.019	0.076	0.096	0.053	0.076	0.011
8/2004	0.005	0.047	0.063	-0.019	0.094	0.005
7/2004	-0.032	-0.013	0.084	-0.049	-0.082	-0.034
6/2004	0.021	0.031	0.050	0.030	-0.006	0.019
5/2004	0.010	0.032	-0.017	0.005	-0.045	0.013
4/2004	-0.020	0.005	-0.147	0.007	-0.160	-0.015
3/2004	-0.006	-0.054	0.000	-0.047	0.121	-0.016
2/2004	0.017	0.043	0.038	-0.008	0.087	0.012
1/2004	0.016	0.046	-0.040	0.011	0.063	0.018
12/2003	0.063	0.091	0.177	0.114	0.069	0.052
11/2003	0.015	0.035	0.060	0.053	0.061	0.010
10/2003	0.060	0.048	0.109	0.119	-0.067	0.057
9/2003	0.006	0.061	0.018	-0.007	0.080	-0.012
8/2003	0.022	-0.017	0.101	-0.017	0.139	0.019
7/2003	0.020	0.023	0.055	0.059	-0.075	0.019
6/2003	0.018	0.001	0.002	0.052	0.077	0.012
5/2003	0.058	0.107	0.024	0.067	0.141	0.054
4/2003	0.089	0.182	0.210	0.237	0.211	0.084
3/2003	-0.003	-0.011	0.138	-0.038	-0.063	0.009
2/2003	-0.017	-0.114	-0.038	-0.069	0.103	-0.015
1/2003	-0.030	-0.055	-0.033	-0.024	-0.050	-0.024
12/2002	-0.048	0.028	0.093	-0.077	-0.019	-0.060
11/2002	0.054	0.042	0.012	0.057	-0.002	0.060
10/2002	0.074	0.086	0.285	0.140	0.082	0.091
9/2002	-0.110	-0.166	-0.303	-0.244	-0.007	-0.113
8/2002	0.002	0.007	0.228	0.004	0.033	0.005
7/2002	-0.084	-0.136	-0.290	-0.165	-0.100	-0.072
6/2002	-0.060	-0.017	-0.184	-0.029	-0.102	-0.076
5/2002	0.002	0.032	-0.074	-0.009	0.018	-0.007
4/2002	-0.034	0.046	-0.009	-0.029	0.091	-0.065
3/2002	0.044	0.024	0.001	0.080	0.176	0.037
2/2002	-0.009	-0.011	0.143	-0.013	-0.076	-0.020
1/2002	-0.030	-0.053	-0.063	-0.045	0.091	-0.014
12/2001	0.006	0.053	0.142	0.031	0.103	0.006
11/2001	0.059	0.032	0.100	0.088	0.124	0.077
10/2001	0.019	-0.033	0.055	0.044	0.125	0.015
9/2001	-0.088	-0.096	-0.167	-0.162	-0.149	-0.076
8/2001	-0.048	0.020	-0.085	-0.071	0.050	-0.066
7/2001	-0.013	0.066	-0.071	0.005	-0.097	-0.009
6/2001	-0.031	0.029	-0.015	-0.005	-0.010	-0.023
5/2001	-0.012	-0.042	-0.052	-0.062	0.181	0.006
4/2001	0.074	-0.007	0.051	0.070	0.091	0.078
3/2001	-0.065	-0.090	-0.113	-0.105	-0.008	-0.064
2/2001	-0.084	0.001	-0.103	-0.081	-0.084	-0.089
1/2001	0.019	-0.025	0.133	0.037	0.194	0.037
12/2000	0.016	0.091	0.141	0.085	0.027	-0.002
11/2000	-0.061	-0.034	-0.112	-0.073	-0.297	-0.079
10/2000	-0.017	-0.014	-0.078	0.008	-0.061	-0.007
9/2000	-0.053	-0.040	-0.064	-0.052	-0.180	-0.054
8/2000	0.033	-0.016	0.025	-0.046	0.191	0.052
7/2000	-0.028	0.012	-0.010	-0.003	0.119	-0.018
6/2000	0.034	0.068	0.123	-0.003	-0.076	0.024
5/2000	-0.025	0.038	-0.012	-0.031	-0.151	-0.026
4/2000	-0.042	-0.027	-0.133	-0.086	-0.021	-0.032
3/2000	0.069	0.003	0.039	-0.016	0.376	0.100
2/2000	0.003	-0.042	0.042	0.105	-0.026	-0.024
1/2000	-0.057	-0.186	-0.042	-0.035	-0.083	-0.054
12/1999	0.081	0.069	0.258	0.172	0.611	0.070
11/1999	0.028	-0.029	0.188	0.028	0.150	0.021
10/1999	0.052	-0.004	0.034	0.054	0.168	0.065
9/1999	-0.010	-0.030	0.052	-0.013	-0.162	-0.030
8/1999	-0.002	0.051	-0.039	0.018	-0.154	-0.006
7/1999	-0.003	0.011	-0.098	-0.016	-0.032	-0.032
6/1999	0.047	0.012	0.041	0.056	0.180	0.054
5/1999	-0.037	-0.055	-0.037	-0.060	0.044	-0.023
4/1999	0.040	-0.032	0.122	0.065	0.164	0.036
3/1999	0.042	-0.056	0.368	-0.027	0.262	0.042
2/1999	-0.026	-0.045	0.072	-0.082	0.457	-0.028
1/1999	0.022	-0.031	-0.280	0.017	-0.113	0.043
12/1998	0.049	0.113	-0.178	0.025	-0.219	0.059
11/1998	0.060	0.033	0.176	0.052	0.394	0.068
10/1998	0.091	0.070	0.040	0.042	0.547	0.078
9/1998	0.018	-0.019	0.043	-0.013	-0.403	0.066
8/1998	-0.133	-0.074	-0.376	-0.164	-0.592	-0.139
7/1998	-0.001	0.050	0.098	0.024	0.021	-0.010
6/1998	0.024	0.074	-0.038	0.042	-0.208	0.043
5/1998	-0.012	0.061	-0.156	0.081	-0.393	-0.020
4/1998	0.010	0.069	-0.039	0.037	-0.024	0.012
3/1998	0.042	0.085	0.094	0.068	0.056	0.052
2/1998	0.068	0.049	0.076	0.064	0.174	0.070
1/1998	0.028	0.038	-0.084	0.030	-0.300	0.013
12/1997	0.012	0.023	0.094	0.042	0.218	0.015
11/1997	0.018	0.011	0.030	0.035	-0.213	0.049
10/1997	-0.052	-0.006	-0.241	-0.070	-0.143	-0.027
9/1997	0.054	0.059	0.108	0.077	0.076	0.052
8/1997	-0.068	-0.074	-0.152	-0.099	-0.054	-0.059
7/1997	0.046	0.015	0.029	0.098	0.165	0.079
6/1997	0.050	0.021	0.100	0.044	0.190	0.046
5/1997	0.062	0.025	0.064	0.043	0.125	0.057
4/1997	0.033	0.011	0.081	-0.036	0.081	0.066
3/1997	-0.020	0.015	-0.010	0.074	-0.078	-0.045
2/1997	0.011	0.016	0.102	0.042	0.181	0.007
1/1997	0.012	0.025	0.116	-0.004	0.381	0.069
12/1996	-0.016	0.005	0.050	0.003	0.053	-0.019
11/1996	0.056	0.031	0.001	0.040	0.028	0.076
10/1996	0.007	0.016	0.027	0.009	0.093	0.026
9/1996	0.039	0.014	0.020	0.007	-0.108	0.056
8/1996	0.012	0.010	0.019	0.023	0.234	0.023
7/1996	-0.035	0.012	-0.010	0.003	-0.257	-0.044
6/1996	0.005	0.005	0.049	0.021	0.426	0.006
5/1996	0.001	0.017	0.077	0.015	0.372	0.027
4/1996	0.024	0.027	0.021	-0.036	0.396	0.015
3/1996	0.017	-0.023	-0.013	-0.003	0.046	0.010
2/1996	0.006	-0.010	-0.039	0.009	-0.103	0.011
1/1996	0.019	0.023	0.173	0.044	0.021	0.036
12/1995	0.029	0.057	-0.017	0.031	0.115	0.015
11/1995	0.035	0.018	-0.002	0.002	-0.041	0.044
10/1995	-0.015	0.003	-0.093	-0.012	-0.156	0.000
9/1995	0.029	0.037	0.050	0.014	-0.049	0.045
8/1995	-0.022	-0.055	0.053	-0.054	-0.133	0.000
7/1995	0.050	0.034	0.037	0.060	0.000	0.034
6/1995	0.000	0.003	-0.025	0.029	0.430	0.025
5/1995	0.009	-0.002	0.002	0.009	0.324	0.039
4/1995	0.035	0.066	0.192	0.043	-0.236	0.032
3/1995	0.048	0.063	-0.129	-0.023	0.087	0.027
2/1995	0.015	0.031	-0.148	0.085	-0.200	0.040
1/1995	-0.015	-0.004	-0.085	-0.019	-0.220	0.028
12/1994	0.010	0.015	-0.056	0.036		0.015
11/1994	-0.043	-0.016	-0.040	-0.052		-0.034
10/1994	0.029	0.039	-0.074	0.056		0.023
9/1994	-0.026	-0.054	0.079	-0.059		-0.021
8/1994	0.030	0.015	0.358	0.037		0.040
7/1994	0.019	0.048	0.180	0.050		0.034
6/1994	-0.003	-0.014	0.022	0.003		-0.028
5/1994	0.003	-0.020	-0.005	-0.057		0.017
4/1994	0.032	0.057	-0.212	0.060		0.014
3/1994	-0.043	-0.013	0.026	0.035		-0.043
2/1994	-0.013	-0.004	0.030	-0.018		-0.028
1/1994	0.066	0.045	0.348	-0.029		0.036
12/1993	0.049	0.062	0.023	0.058		0.012
11/1993	-0.057	0.017	0.077	-0.023		-0.007
10/1993	0.028	0.039	-0.076	0.060		0.018
9/1993	-0.018	0.012	0.077	0.017		-0.010
8/1993	0.046	0.008	0.070	0.112		0.036
7/1993	0.021	-0.021	0.010	0.033		-0.001
6/1993	-0.008	0.010	0.123	-0.033		0.003
5/1993	0.023	-0.014	0.125	-0.002		0.026
4/1993	0.047	-0.026	-0.011	-0.013		-0.022
3/1993	0.058	0.088	0.030	0.029		0.021
2/1993	0.024	0.004	0.193	0.052		0.013
1/1993	0.003	0.054	-0.022	0.033		0.009
12/1992	0.008	-0.010	0.145	-0.016		0.011
11/1992	0.018	-0.017	-0.124	-0.006		0.033
10/1992	-0.027	-0.055	-0.120	-0.069		0.006
9/1992	-0.009	0.040	0.082	-0.038		0.011
8/1992	0.025	-0.029	-0.024	0.000		-0.024
7/1992	0.003	0.028	0.118	-0.054		0.042
6/1992	-0.033	0.017	-0.322	0.018		-0.015
5/1992	0.040	0.030	-0.010	0.064		0.004
4/1992	0.014	0.015	0.006	-0.004		0.029
3/1992	-0.047	-0.018	0.112	-0.022		-0.018
2/1992	-0.017	0.001	-0.010	0.025		0.011
1/1992	-0.019	0.000	0.377	0.007		-0.017
12/1991	0.073	0.113	0.545	0.074		0.114
11/1991	-0.044	0.013	-0.174	0.016		-0.040
10/1991	0.017	0.020	0.032	-0.023		0.017
9/1991	0.027	0.017	-0.147	0.022		-0.017
8/1991	-0.003	-0.001	-0.054	0.013		0.024
7/1991	0.047	0.023	0.101	0.034		0.047
6/1991	-0.062	-0.055	-0.025	-0.093		-0.046
5/1991	0.023	-0.001	0.466	0.065		0.042
4/1991	0.008	-0.029	0.042	0.035		0.004
3/1991	-0.029	-0.067	-0.104	-0.134		0.024
2/1991	0.093	0.110	0.223	0.071		0.069
1/1991	0.036	0.015	0.427	0.027		0.048
12/1990	0.021	0.006	-0.025	-0.036		0.028
11/1990	-0.016	-0.026	0.035	0.020		0.066
10/1990	0.094	0.084	-0.290	0.130		-0.003
9/1990	-0.104	-0.096	-0.142	-0.176		-0.046
8/1990	-0.093	-0.092	-0.156	-0.148		-0.091
7/1990	0.009	0.056	0.256	0.073		-0.001
6/1990	-0.008	0.007	0.016	0.043		-0.004
5/1990	0.105	0.025	-0.118	0.012		0.093
4/1990	-0.014	-0.007	0.806	-0.068		-0.020
3/1990	-0.060	0.090	-0.666	0.097		0.024
2/1990	-0.043	-0.091	0.069	-0.020		0.015
1/1990	-0.047	-0.037	0.018	0.030		-0.065
12/1989	0.032	0.051	0.268	0.202		0.023
11/1989	0.041	0.072	-0.261	0.103		0.021
10/1989	-0.033	-0.038	0.139	-0.047		-0.023
9/1989	0.029	0.087	0.065	0.044		-0.002
8/1989	-0.024	-0.021	-0.054	-0.012		0.015
7/1989	0.113	0.052	0.157	0.102		0.092
6/1989	-0.012	0.008	-0.412	0.077		-0.004
5/1989	-0.024	-0.037	-0.044	-0.035		0.039
4/1989	0.023	0.032	0.397	0.050		0.054
3/1989	-0.007	-0.006	0.306	-0.018		0.023
2/1989	-0.007	-0.022	0.358	0.002		-0.030
1/1989	0.037	0.002	-0.199	-0.047		0.076
12/1988	0.009	0.015	0.150	0.031		0.016
11/1988	0.034	0.028	-0.062	-0.006		-0.015
10/1988	0.066	0.088	-0.013	0.106		0.031
9/1988	0.043	0.096	0.207	0.075		0.043
8/1988	-0.055	-0.004	0.052	-0.007		-0.034
7/1988	0.019	-0.051	-0.145	0.009		-0.003
6/1988	-0.001	0.015	-0.091	0.003		0.047
5/1988	-0.020	-0.046	0.033	-0.011		0.009
4/1988	0.013	0.008	0.105	-0.016		0.009
3/1988	0.030	0.040	0.451	0.000		-0.033
2/1988	0.058	0.252	-0.067	0.160		0.042
1/1988	0.025	0.040	0.252	-0.121		0.043

 

ANSWER

4. A. Belgium

The systematic risk is represented by the coefficient of the independent variable (in this case world) in the regression equation. This risk is called beta of the nation. The following are the betas calculated by the regression equations:

Country	Beta
Belgium	0.807
Brazil	1.506
Germany	1.117
Russia	2.033
USA	0.835

We can see that Belgium has minimum systematic risk.

5. B. Brazil

The idiosyncratic risk is the portion of risk unexplained by the market factor. The value of 1−R² of the regression gives us the value for the risk. The following are the risk values calculated:

Country	Idiosyncratic Risk
Belgium	0.593
Brazil	0.857
Germany	0.487
Russia	0.799
USA	0.299

6. B. Brazil

D. Germany

The lower bounds available in the regression outputs cannot be used here as that is a two tailed lower bound whereas we need a 1 tailed lower bound. The same have been calculated below using a t value of 1.65 and standard errors of the coefficients.

Country	Difference from Mean	Lower bound of Beta
Belgium	0.110	0.697
Brazil	0.416	1.090
Germany	0.123	0.994
Russia	0.586	1.447
USA	0.061	0.773

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