Question 1:
a. Explain what Hi-Tech and Non-Durable goods are, and how you would expect demands for these products to differ during times of recession and economic expansion.
b. In one-two paragraphs discuss the four factors provided, and explain what economic forces they represent.
c. What signs (positive or negative) would you expect to estimate on the consumption, risk and term spreads in each of the two portfolio equations? Why?
d. Plot the monthly returns on the two portfolios and provide basic summary statistics. Discuss and compare the two return series in terms of these quantities.
Question 2:
a. Estimate the following model for each of the two portfolios:
Which parameters are statistically significant at the 5% level? Carefully interpret and discuss your results. Are the estimated parameters of the same signs as you expected in Q1. c)?
b. Conduct a test for the validity of the CAPM. What do you find?
c. Conduct the basic diagnostic tests on the estimated model, i.e. autocorrelation, heteroskedasticity, non-normality, misspecification of functional form. Comment on your results and carry out remedies for problems you encounter.
a. Explain what Hi-Tech and Non-Durable goods are, and how you would expect demands for these products to differ during times of recession and economic expansion.
b. In one-two paragraphs discuss the four factors provided, and explain what economic forces they represent.
c. What signs (positive or negative) would you expect to estimate on the consumption, risk and term spreads in each of the two portfolio equations? Why?
d. Plot the monthly returns on the two portfolios and provide basic summary statistics. Discuss and compare the two return series in terms of these quantities.
Question 2:
a. Estimate the following model for each of the two portfolios:
Which parameters are statistically significant at the 5% level? Carefully interpret and discuss your results. Are the estimated parameters of the same signs as you expected in Q1. c)?
b. Conduct a test for the validity of the CAPM. What do you find?
c. Conduct the basic diagnostic tests on the estimated model, i.e. autocorrelation, heteroskedasticity, non-normality, misspecification of functional form. Comment on your results and carry out remedies for problems you encounter.
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