Explain Whether There is Significant Evidence of Any Day-of-the-Week Effects - Economics Assignment Help

Assignment Task

1. A researcher is attempting to form an econometric model to explain daily movements of stock returns. A colleague suggests that she might want to see whether her data are influenced by daily seasonality. Consequently, she developed and estimated the following model for asset returns(standard errors in brackets):

where the dummies are for Monday, Tuesday,Wednesday and Thursday respectively. The model is estimated using 500 observations.
 

Required:
(i) Explain whether there is significant evidence of any “day-of-the-week effects” after allowing for the effects of the other variables?

(ii) Write out the regression equation for returns for Tuesday.

(iii) If on Tuesday of a particular week what would you expect the stock returns to be?

2. (a) A researcher wants to identify and estimate the correct ARIMA model for the earnings per share of a company. He has obtained quarterly data over a 15-year period. Before estimating the ARIMA model, the researcher creates the following timeplots and correlograms:

Required:
Briefly explain why the researcher conducted timeplots and correlograms and interpret the results that he obtained.

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