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BANGOR UNIVERSITY
MAI 2012
MAY 2012
ACCOUNTING AND FINANCE
BANKING AND FINANCE
ECONOMICS
MANAGEMENT
BUSINESS AND MARKETING
2 AWR
2 HOURS
ECONOMETRICS
Trosodd/Over
Formula sheet
1/ 2
1
f (x i )
2
2
( x i ) 2
2 2
exp
OLS estimation:
n x i yi x i yi
2
2
2
n x i x i
1 y 2 x
var( 1 )
ei
n2
x i
n (x i x)
var( 2 )
(x i x)
e i2
1 n k
2
( y i y)
n 1
;
( x i x )( y i y)
xy
2
2
( x i x ) ( y i y)
Correlation coefficient:
Goodness of fit:
( y i y)
( y i y)
R2 =
( y i y)
k 1
F-tests:
R2
e e
2
i 1
k 2 k1
2
i
e
nk
2
i 2
2
i 2
n k2
S byy
N 1
=
LR test:
Bera-Jarque:
S wyy
NT N
S yy
where
N T
N
2
2
( y it ~y i )
T(~y i y) S w
yy
i 1 t 1
i 1
=
,
=
= 2[ln(L1)ln(L2)]
n 2 n
1
( 2 3) 2
6
24
Trosodd/Over
Section A
Answer FOUR questions from Section A.
Each question carries 15 marks.
1.
show the expressions for the ordinary least squares estimators of 1 and 2 are:
1 y 2 x
y
where
n x i yi x i yi
2
2
2
n x i x i
yi
n
x
;
xi
n
; n = number of observations.
(15 marks)
2.
Unbiasedness
Efficiency
Skewness
(iv)
(v)
Standard error of
Type II error.
(3 marks each)
3.
(a)
y i 1 2 x 2i 3 x 3i ... k x ki
y t
yi =
+ ei,
where
Trosodd/Over
(b)
( y i y) ( y i y) e i
where
yi
n
Explain how this expression can be used to construct a test of the null
hypothesis H0: 2=3=0.
(7 marks)
For each of the following assumptions concerning the multiple regression
model, describe briefly one method you could use to test the validity of the
assumption.
(i)
(ii)
Normality
Linearity
(4 marks each)
4.
(a)
(b)
Instrument relevance
Instrument exogeneity
(4 marks)
5.
(b)
(a)
(b)
What are the factors that you would take into account when deciding whether
to use fixed effects or random effects estimation?
(9 marks)
Trosodd/Over
Section B
Answer TWO questions from Section B.
Each question carries 20 marks.
6.
The model is to be estimated using n=20 observations on the series xi and yi. The
following results are available:
xi
yi
= 407.96
x i yi
= 1137.42
= 82.74
xi
= 5317.12
(x i x)
( y i y)
= 607.98
= 165.31
ei
(a)
= 117.77
(b)
(c)
and
.
(6 marks)
.
(4 marks)
(4 marks)
(d)
Trosodd/Over
7.
Note:
= 37.5432
( y i y)
= 3.8530
ei
= 33.6902
2
( y i y)
(b) Using hypothesis tests based on the estimation results that are reported above, you are
asked to evaluate each of the following assertions
(c)
(i)
(ii)
After allowing for the other controls that are included in the model,
banks with a smaller loans portfolio relative to their assets were more
profitable than banks with a larger loans portfolio.
(iii)
(i)
(ii)
Trosodd/Over
8.
(a)
A researcher has collected the following data on the yit = profitability (return
on equity) of bank i in year t, for a sample of N=3 banks in each of the T=5
years 2003-2007 inclusive:
Year, t Bank, i
2003
2004
2005
2006
2007
Bank sample means:
i=1
4.1
5.7
3.2
6.6
4.9
~y
1
= 4.9
Overall mean:
i=2
4.3
5.2
4.7
3.9
4.4
~y
2
y
= 4.5
i=3
6.9
7.1
8.4
6.2
6.4
~
y3
= 7.0
= 5.5
Test the null hypothesis that the population mean value for return on equity is
the same for each of the three banks.
(5 marks)
(b)
Using a panel data set for a larger number of banks, the researcher is
considering estimating each of the following regression models:
Pooled model:
yit = + 1xit + uit
Within model:
yit = i + 1xit + uit
where yit = return on equity of bank i in year t
xit = log assets of bank i in year t
(i)
Explain how you would interpret the information about the relationship
between log assets and return on equity that is provided by the
estimated versions of the pooled model and the within model.
(ii)
What factors might influence the choice between the use of the fixed
effects and random effects estimators for the estimation of the within
model?
(iii)
Diwedd/End