OnePager_A_2011Fall

OnePager_A_2011Fall - intentionally a little vague to allow...

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Economics 140A Fall 2011 Professor Startz One Pager A Your assignment is to write a one page single spaced paper answering the question posed below. One page is the absolute limit, so the effort to length ratio must be very high. Papers will be graded based on both substance and exposition. (You may attach a technical appendix showing computer output, but this is not required. If you do, you must assume that the reader will rely only on the one page summary and not read the appendix.) Question: Your firm is considering making trades in IBM stock based on the observable returns to stocks from the preceding trading day. How useful is this information for predicting the return on the current day's trades? To answer this question, you will probably want to regress the current return to IBM stock on some set of the lagged returns, comment on the size of the coefficients, and comment on how much of the variance in current returns is reduced by knowing the lagged returns. Having said this, the question is
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Unformatted text preview: intentionally a little vague to allow for more open ended answers. You can use any of the concepts or tools we have learned so far to predict current returns. Imagine that you are working for an investment firm and that you have been asked to give advice to a senior manager who is not statistically oriented. In other words, the manager is interested in substantive advice rather than you showing off your knowledge of statistics. The file “Two Stocks.wf1” has daily data on the closing price of IBM stock (adjusted for stock splits) in the series named “IBM”, and Citigroup closing stock prices in the series “CITIGROUP”. Also included in the data is the S&P 500 in series “SP500”, and the 3 month treasury bill rate in series “TB3”. You may assume that the daily return on a stock is defined as ± ² ³´µ ¶ ± · ³´µ ¶ ±¸¹ ....
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This note was uploaded on 12/26/2011 for the course ECON 140a taught by Professor Staff during the Fall '08 term at UCSB.

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