ProblemSet11 - Professor Mumford Econ 360 - Fall 2010...

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Unformatted text preview: Professor Mumford Econ 360 - Fall 2010 mumford@purdue.edu Problem Set 11 (Advanced Topics: Time Series and Panel Data) Due at the beginning of class on Thursday, December 9 True/False (15 points) Please write the entire word. No explanations are required. 1. The Dickey-Fuller test can be used to determine if there is evidence that the specified time series is persistent. 2. Regressing a highly persistent time series on another highly persistent time series pro- duce spurious results. 3. Fixed-effects estimation can be used to estimate causal effects if the unobserved factors that are correlated with the dependent variable of interest are time invariant. 4. The validity of differences-in-differences estimation depends on the assumption that pre-existing trends in the treated and control groups are similar. 5. With panel data, estimation in first differences and fixed-effects estimation are com- putationally identical. 1 Long Answer Questions (84 points) 6. [Stata] (14 points) This question uses the Stata output for the New York Stock Exchange (NYSE) Index. It is daily data of the closing price and total volume of trades from January 2005 - December 2010. The New York Stock Exchange is open Monday through Friday. (a) Is there evidence that the NYSE trade volume depends on the day of the week? Which day of the week is generally busiest and which day is generally the least busy. (b) Is there evidence that the NYSE closing price depends on the day of the week? Explain why you think this is the case. (c) Is there evidence that the NYSE closing price is a highly persistent series? Ex- plain. (d) Is there evidence that the NYSE trading volume is a highly persistent series? Explain. (e) Run a regression of closing price on trading volume. What can you conclude from this regression? (f) The NYSE daily rate of return is given by: P t- P t- 1 P t- 1 Is there evidence that the NYSE rate of return is a highly persistent series? (g) Is there evidence that the NYSE rate of return is related to the volume? Is there evidence of seasonality in the rate of return? 7. [Stata] (8 points) Use the dataset VOLAT.DTA for this exercise. The variable rsp 500 is the monthly return on the Standard & Poors 500 stock market index, at an annual rate. (This includes price changes as well as dividends.) The variable i 3 is the return on three- month T-bills and pcip is the percentage change in industrial production: these are also at an annual rate. Consider the equation:also at an annual rate....
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This note was uploaded on 02/06/2012 for the course ECON 360 taught by Professor Na during the Spring '10 term at Purdue University-West Lafayette.

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ProblemSet11 - Professor Mumford Econ 360 - Fall 2010...

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