Multiple Regression: Hypothesis Testing of Market Return Coefficient

Medium Multiple Regression Analysis Hypothesis Testing

Imagine a financial analyst is conducting a multiple regression analysis to evaluate the impact of various factors on a company's stock price. The model includes three independent variables: earnings per share (EPS), market return, and a company-specific risk factor. The regression output provides the following coefficient estimates:

Coefficient for EPS: 2.5
Coefficient for Market Return: 1.8
Coefficient for Risk Factor: -0.5

The analyst wants to test the null hypothesis that the market return coefficient is equal to zero at the 5% significance level. From the regression output, the standard error of the market return coefficient is 0.4. What is the correct conclusion from the hypothesis testing?

We reject the null hypothesis, indicating that there is significant evidence that market return influences stock price.

We fail to reject the null hypothesis, suggesting that market return does not have a significant impact on stock price.

We lack enough information to conclude about the market return's influence on stock price.

Hint

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