Your instructor conducts equity volatility research using a generalized autoregressive conditional heteroscedasticity (G

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Your Instructor Conducts Equity Volatility Research Using A Generalized Autoregressive Conditional Heteroscedasticity G 1 (83.24 KiB) Viewed 59 times

Your instructor conducts equity volatility research using a generalized autoregressive conditional heteroscedasticity (GARCH) model. The first two equations in one of his research papers are: Ries=₁y+By Rm.ty +Ety Ey~N(0, hey) huty=You+Y₁yh₁-15 +Y2y²r-1.3 (Equation # 2) f where Rity and Rey are the daily stock returns on firm į at day for year y and the value weighted US market return on day for year y, respectively. Ey is the residual firm-specific component of (abnormal) returns, while he represents conditional variance. Which FIN 3200 equation is the best substitute for the equation pair provided above? Var(R) = o = E=₁ (P₁ × (E(r;) — E(R))²) r = g +₁ Po = P₁-Po+C₁ Po CAPM: R= Rrf + B₁(Rm - Rrf) PVA, = [1 (1+0) r-g Ct NPV = PVinflows - PVoutflows = =0(1+r)² (Equation #1)