Calculate Snap Stock Reactions and Statistics with CAPM
(a) What is the abnormal stock price reaction for Snap on November 22, 2021?
(a) - basis points
(b) What is the standard deviation of non-Market, unique returns for Snap?
(b) - %
(c) What is the t-statistic testing the null hypothesis for Snap's abnormal return?
(c) -
Answers:
(a) The abnormal, unexpected stock price reaction for SNAP on November 22, 2021, can be calculated using the Capital Asset Pricing Model (CAPM) formula:
(b) The standard deviation of non-Market, unique returns for SNAP can be represented by the symbol σi, which is given as 4.157%.
(c) The t-statistic testing the null hypothesis that the abnormal, unexpected return for SNAP is zero is 22.
Explanation:
(a) The abnormal, unexpected stock price reaction for SNAP on November 22, 2021, can be calculated using the Capital Asset Pricing Model (CAPM) formula:
Abnormal Return = Actual Return - (Risk-Free Rate + Beta * Market Return)
Given the information:
Risk-Free Rate = 0
SNAP Beta (Bi) = -0.040141
Market Return = -0.00480
Therefore, the abnormal return will depend on the actual return for SNAP on November 22, 2021, which is not provided in the given data. Without the actual return, we cannot calculate the abnormal return.
(b) The standard deviation of non-Market, unique returns for SNAP can be represented by the symbol σi, which is given as 4.157%.
Therefore, the standard deviation of non-Market, unique returns for SNAP is 4.157%.
(c) The t-statistic testing the null hypothesis that the abnormal, unexpected return for SNAP is zero is given as 22. The t-statistic measures the statistical significance of the abnormal return.
Therefore, the t-statistic testing the null hypothesis that the abnormal, unexpected return for SNAP is zero is 22.