Investments, tenth edition

  Analysis of Variance 

 The next panel of  Table 8.1  shows the 

analysis of variance (ANOVA) for the 

SCL. The sum of squares (SS) of the regression (.3752) is the portion of the variance of 

the dependent variable (HP’s return) that is explained by the independent variable (the S&P 

500 return); it is equal to    b

HP

2

s

S&P 500

2

.  The MS column for the residual (.0059) shows the vari-

ance of the  unexplained  portion of HP’s return, that is, the portion of return that is independent 

of the market index. The square root of this value is the standard error (SE) of the regression 

(.0767) reported in the first panel. If you divide the total SS of the regression (.7162) by 59,