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Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 1999

INVESTMENTS

Fourth Edition

Bodie               Kane             Marcus

2. Returns are adjusted to determine if they are abnormal

Market Model approach

a.  Rt = at + btRmt + et

(Expected Return)

b.  Excess Return =     (Actual - Expected)

et = Actual - (at + btRmt)

How Tests Are Structured (cont’d)

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