In This Question You Are Required To Show Detailed Intermediate Derivation Steps For Each Sub Question Omission Of Int 1 (70.89 KiB) Viewed 17 times
In This Question You Are Required To Show Detailed Intermediate Derivation Steps For Each Sub Question Omission Of Int 2 (70.89 KiB) Viewed 17 times
In this question, you are required to show detailed intermediate derivation steps for each sub-question. Omission of intermediate processes could result in the substantial deduction of points. We analyse time series data with the variable from a financial market: returne: Weekly return from a market The sample size of this variable is 731. The AR(1) model with this data is return; = a + b • return-1 + ue (1) Concisely describe the efficient market hypothesis, and how to test it with the above AR(1) model by specifying the hypothesis. Weight: 8.33%) (2) The OLS estimation result of the above AR(1) model is return; = 0.183 +0.54 • returnt-1 (0.075) (0.39) R2 = 0.037, where the insides of parentheses are robust standard errors. Describe what assumptions are required for deriving the consistency and asymptotic normality of OLS estimator. Also, explain how the robust standard effort is obtained. [Weight: 8.33%) (3) Given the above AR(1) model estimation result, test the efficient market hypothesis. Then, report and interpret the test result Weight: 8.33%) (4) We now consider the AR(2) model for this financial market data. The OLS estimation result of AR(2) model is return; = 0.184 +0.57. return -1 -0.28 • returne-2 (0.76) (0.37) (0.032) R2 = 0.047 State the hypothesis to test the efficient market hypothesis with the above AR(2) model estimation result. Then, report and interpret the test result. Weight: 8.33%)
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