Portion of the regression results

Reference no: EM131798665

In an attempt to "time the market," a financial analyst studies the quarterly returns of a stock. He uses the model y = β₀ + β₁ d₁ + β₂d₂ + β₃d₃ + ε where y is the quarterly return of a stock, d₁ is a dummy variable that equals 1 if quarter 1 an d₀ otherwise, d₂ is a dummy variable that equals 1 if quarter 2 and 0 otherwise, and d₃ is a dummy variable that equals 1 if quarter 3 and 0 otherwise. The following table is a portion of the regression results.

835_portion of the regression results.png

a. Given that there are four quarters in a year, why doesn't the analyst include a fourth dummy variable in his model?

b. At the 5% significance level, are the dummy variables individually significant? Explain. Is the analyst able to obtain higher returns depending on the quarter?

Reference no: EM131798665

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