ECON1095 - Australian Share Market - Matrix Correlation Coefficients - Regression - T Test - Economics Assessment Answer

Assessment Task:

ECON1095 Australian Share Market Economics Assessment Answer

Task:

You are trying to find the main drivers of future returns on the Australian share market using information from 2013 to 2019. The data is in ECON1095 Data Sem 2 2019.xls on the Aust share mkt worksheet and the returns on China: Shanghai A from the Int’l share price indices worksheet. This will be used to construct a one period ahead forecasting model of the form:

Yt = ?0 + ?1X1 t-1 + ?2X2 t-1 + ...... +?nXn t-1

Where Yt are the returns on Share price indices: S&P/ASX 200 and the Xn t-1’s are the nine other variables in the worksheet as well as the returns on the Chinese share market from the other worksheet. That is, initially you need to consider ten independent variables.  Please use returns for all the market indexes and levels for the other variables.  That is, use returns for all variables other than for Dividend yield, Price/Earnings ratio, Market capitalization and Average daily turnover of equities – which all should be in levels.

(a)    Calculate the matrix correlation coefficients between the dependent and independent variables, then briefly interpret.
(b)    Estimate the complete multiple regression equation, then:
•    Interpret the coefficient of determination and the F-statistic.
•    Use t-tests to identify the variables that do and do not have a significant impact on Yt.
•    Examine and graph the residuals, then comment.
•    Briefly comment on your regression findings.
(c)    Using data from 2013 until the end of 2018 only and an iterative approach constructs the best model you can to forecast Yt.  That is, develop a model that only includes the relevant independent variables.
(d)    Use the model you constructed in part (c) to forecast for 2019 and compare your forecasts with the actual values.  Please show in both in a table and on a graph.

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