Difference between the actual value and the fitted value

Reference no: EM132412126

Questions -

Question 1. Explain some of the differences between financial data and economic data.

Question 2. Outline and discuss the steps involved in setting up and estimating an econometric model.

Question 3. Explain how you would carry out a hypothesis test and discuss the difference between a one and two tailed test.

Question 4. Given the following regression result:

R^{^}_t = 0.567 + 1.045R_mt, n = 50

SE (0.33) (0.06)

(Standard errors in brackets)

where R_t and R_mt denote the excess return of a stock and the excess return of the market index for the London Stock Exchange ( a hat or ^ over a variable indicates it is a fitted value).

a) If R_mt increases by 1%, what happens to R^{^}_t?

b) If R_mt is zero, what value does R^{^}_t take?

c) Are these coefficients statistically significant? Explain the meaning of your findings with regards to the Capital Asset Pricing Model (CAPM).

d) Derive a 95% confidence interval for each coefficient?

Question 5. Given the following result, use a t-test to determine if x_t has a significant effect on y_t. (62 observations)

y^{^}_t = 0.7 + 0.6x_t

(0.4) (0.2)

(Standard errors in brackets)

Question 6. Explain the difference between the actual value and the fitted value of the dependent variable (y).

Question 7. Given the following data, estimate the constant α, the slope parameter β and the explanatory power R², interpret the results.

Date	y	x
1994	72.30	100.00
1995	91.65	120.00
1996	135.20	200.00
1997	94.60	130.00
1998	163.50	240.00
1999	100.00	114.00
2000	86.50	126.00
2001	142.36	213.00
2002	120.00	156.00
2003	112.56	167.00
2004	132.30	189.00
2005	149.80	214.00
2006	115.30	188.00
2007	132.20	197.00
2008	149.50	206.00
2009	100.25	142.00
2010	79.60	112.00
2011	90.20	134.00
2012	116.50	169.00
2013	126.00	170.00

Reference no: EM132412126

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