Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 12 Nov 2017 My Price 8.00

Edward Saunders

Edward Saunders published an article that tested the possibility that the stock market is affected by the weather on Wall Street. Using daily data from 28 years, he estimated an equation with the following variables (standard errors in parentheses):9

a. Saunders did not include an estimate of the constant term in his published regression results. Which of the Classical Assumptions supports the conclusion that you shouldn’t spend much time analyzing estimates of the constant term? Explain.

b. Which of the Classical Assumptions would be violated if you decided to add a dummy variable to the equation that was equal to 1 if the ith day was a Tuesday, Wednesday, Thursday, or Friday, and equal to 0 otherwise?

c. Carefully state the meaning of the coefficients of R and M, being sure to take into account the fact that R is lagged (one time period behind) in this equation for valid theoretical reasons.

d. The variable C is a measure of the percentage of cloud cover from sunrise to sunset on the ith day and reflects the fact that approximately 85 percent of all New York’s rain falls on days with 100 percent cloud cover. Is C a dummy variable? What assumptions (or conclusions) did the author have to make to use this variable? What constraints does it place on the equation?

e. Saunders concludes that these findings cast doubt on the hypothesis that security markets are entirely rational. Based just on the small portion of the author’s work that we include in this question, would you agree or disagree? Why?

Answers

Maurice Tutor
(5)
Status NEW Posted 12 Nov 2017 11:11 AM My Price 8.00

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