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Econometrics For Finance Assignment R.V

The document provides instructions for an econometrics assignment with two parts. Part one involves answering theoretical questions about econometric models and concepts. Part two involves using sample data to estimate linear regression models and conduct statistical tests.

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Dureti Niguse
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Download as DOCX, PDF, TXT or read online on Scribd
18 views

Econometrics For Finance Assignment R.V

The document provides instructions for an econometrics assignment with two parts. Part one involves answering theoretical questions about econometric models and concepts. Part two involves using sample data to estimate linear regression models and conduct statistical tests.

Uploaded by

Dureti Niguse
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Rift valley university

Department of Accounting and finace


Econometrics for Finance Assignment: total mark 25%

Instructor: Dessie M.

General Directions:

 Try to show all the necessary steps and explanations neatly,


 copying from each other is totally forbidden and will result in zero value, and
 Papers submitted after the deadline will not accepted.

The goal of this econometrics assignment is to reinforce your understanding the theory and
application of econometric models. It emphasize on understanding of the model and data set
up, model equations, model assumptions and tests, estimation procedures, and interpretation of
results.

Part one: Writing part (only theoretically) (10marks total)

1) Difference between economic model and econometrics model?


2) Write steps in building econometrics model?
3) Explain the Linear Regression model set up and characteristics of the dependent and
independent variables?
4) Explain the difference between simple and multiple linear regressions?
5) What R-squared and adjusted R-squared goodness of fit measures refers to?
6) When we use the t-test and F-test for testing the significance of coefficient?
7) What multicollinearity, Autocorrelation and heteroscedasticity refer to? What are the
causes, effects, detection methods and solutions of those problems?

Part two: Show explicitly all the formulas and calculations (15 marks total)

1) A researcher is using data from a sample of 30 firms to investigate the relationship between firm
productivity of candle factory yi (measured in package) and costs of inputs xi (measured in birr).
Preliminary analysis of the sample data produces the following sample information:
N N N N

 Yi  1,034.97  X i  528.60  Yi  45,237.19 X


2 2
i  11,432.92
N=30, i 1 , i 1 , i 1 , i 1 ,
N N N N N

 X iYi  22,250.54  xi yi  367.18  xi  390.67


2
 yi  1256.24
2
 yˆ i
2
 526.15
i 1 , i 1 , i 1 , i 1 , i 1

Where
xi  X i  X
and
y i  Yi  Y and yˆ i  Yˆi  Y for i = 1, ..., N. Use the above sample

information to answer all the following questions.

(a) Compute the OLS estimates


̂ 0 ˆ1 .
and

(b) Interpret
̂ 0 ˆ1
and

ˆ
(c) Calculate Var (  1 ).
ˆ
(d) Calculate se(  1 ) .
(e) Compute R2 (the coefficient of determination) and interpret it.
(f) Does X affects Y significantly at 5% level of significance? (t crt = 2.048)

2) Consider the level of household consumption (Y as a dependent variable) and income (X)
which represents an independent variable.

Households Consumption (Y) Income (X)


1 377 244
2 384 247
3 376 250
4 390 261
5 414 274
6 427 286
7 440 296
8 453 305
9 471 316
10 483 322
11 487 326
12 482 324
13 486 335
14 485 329
15 486 326

16 486 326
17 489 328
18 487 326
19 485 325
20 478 328
21 481 332
22 489 329
23 482 332
24 491 334
25 493 334

a) Use the above information to compute OLS estimates of the intercept coefficient ^β 0 and the
slope coefficient ^β 1?
b) Interpret the slope coefficient estimate you calculated in part (a) - i.e., explain in words what
the numeric value you calculated for mean ^β 1?

c) State the fitted regression model by substituting the estimated parameters and show
graphically?
d) Calculate an estimate of σ^ 2 , the error variance?
e) Compute the value of R2, the coefficient of determination for the estimated OLS sample
regression equation and adjusted R. finally, interpret the result?
f) Test the point estimate of the hypothesis using standard error test given: H 0 : β 1=0.
g) Conduct the sample value of the t-statistic for testing the null hypothesis: H 0 : β 1=0 against the
alternative hypothesis H 1 : β1 ≠ 0 given α =5 % significance level?
h) Construct 95% confidence interval for the slope of parameter, β 1 and test the significance of
the slope parameter using constructed confidence interval assume 2-tail test?

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