Explain why some stocks have beta values greater than 1 while others are below 1

You have price information on 10 stocks, FTSE All Share Index, and risk-free rate (UK T-bill rate) from 01/2007 to 12/2011. All of the data information can be found in the excel spread sheet “Group_work” which will be uploaded on the Blackboard. You are required to finish the following 4 tasks with your group members and write a report based on the 4 tasks.

Task 1: Individual stocks (25%)

i) Calculate each stock’s average monthly return, its return variance and standard deviations throughout the period 01/2007 to 12/2011.

ii) Using the price information of the FTSE All Share Index as a proxy for market portfolio, calculate each stock’s beta value throughout the period 01/2007 to 12/2011.

iii) Explain why some stocks have beta values greater than 1 while others are below 1 (you may do some research on firm backgrounds and their business).

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