Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 5%, and the marketâs average return was 12%. Performance is measured using an index model regression on excess returns.

Stock A Stock B
Index model regression estimates 1% + 1.2(rM â rf) 2% + 0.8(rM â rf)
R-square 0.599 0.448
Residual standard deviation, Ï(e) 10.7% 19.5%
Standard deviation of excess returns 22% 25.7%

Calculate the alpha for each stock: