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the relationship between oil prices and the stock market. You will be responsible for
collecting the dataset for this exercise.
on the NASDAQ, and the West Texas Intermediate (WTI) crude oil prices in Cushing
from February, 2001 to February, 2014. You will be required to use EXCEL and R
for this homework. All the data you need is available on the Federal Reserve Bank of
Saint Louis' Federal Reserve Economic Data (FRED) website (I showed in class how to
get to this website). Please do the following exercises in EXCEL. Present your nal
answers in a Microsoft Word or LATEX document processor.
1. Collect and construct a time series plot of the data on the NASDAQ. Put this
graph on your Word/LATEX document
2. Collect and construct a time series plot of the data on the WTI crude oil prices.
Put this graph on your Word/LATEX document
3. In general, what can you say about these two graphs? Is there a trend? Why?
4. Now construct a scattergram, with oil prices on the vertical axis, and the NASDAQ on the horizontal axis. What can you say about the relationship?
n
1X
Xt
X=
n t=1
s2x =
Let
(1)
n
1 X
2
(Xt X)
n 1 t=1
(2)
sxy =
n
1 X
(X X)(Y
Y )
n 1 t=1
(3)
xy =
sxy
sx sy
(4)
Wt represent the WTI crude oil prices in month t, and St denote the NASDAQ
in month
t.
Use equations (1) - (2) to nd the sample means, variances, and
standard deviations of
Wt
and
and
and
Wt .
6. Using equations (3) and (4), nd the covariance and correlation between
Wt .
St
Again, you will receive no points if you use built in EXCEL functions such as
= cov() to nd the covariance, or = corr() to nd the correlation between the
two variables. I need to see your EXCEL sheet and how you calculated these
2
statistics using the above formulas. After calculating these, put your nal
Yt = 1 + 2 Xt + ut
(5)
Yt = b1 + b2 Xt + et
(6)
Equation (5) is called the stochastic population regression function (PRF) and
equation (6) is called the stochastic sample regression function.
stochastic error term, and
for
ut
is called the
8. In order to say something about the overall relationship between stock prices
and oil prices, we can use our sample from February, 2000 to February, 2014 to
estimate the following SRF:
St = b1 + b2 Wt + et
(7)
Using the method of Ordinary least squares (OLS), we showed in class that the
estimators
b1
and
b2
b1 = S b2 W
(8)
n
X
)(St S)
(Wt W
b2 =
i=1
n
X
(9)
)2
(Wt W
i=1
Using equations (8) and (9) please provide estimates for
b1
and
b2 . Again, I want
to see you use these formulas in EXCEL. You will receive no points if you use
the regression toolpak in excel. I need to see your EXCEL sheet and how you
calculated these statistics using the above formulas. After calculating these,
b1
and
b2 .
10. We showed in class that the variances of these estimators were given by:
n
X
Wt2
i=1
V ar(b1 ) =
n
n
X
(10)
)2
(Wt W
i=1
1
V ar(b2 ) = X
2
n
)2
(Wt W
(11)
i=1
Where
n2
called the residual sum of squares. What does that mean? Please calculate
2.
11. Using the formulas (10) and (11), calculates the variances and corresponding
standard errors of the estimators
b1
and
formulas in EXCEL. You will receive no points if you use the regression toolpak
in excel. I need to see your EXCEL sheet and how you calculated these statistics
using the above formulas. After calculating these, put your nal answer
12. Submit (by email) your excel spreadsheet (with data and formulas) involving all
your calculations no later than Wednesday March 26 at 3:45 PM. Send the emails
to douy@clarkson.edu.
ln Yt = 1 + 2 ln Kt + 3 ln Lt + ut
where
ln
Yt
Lt
(12)
Kt
work per week for production workers in the manufacturing sector in the U.S. All the
data you will need are on the FRED website of the Federal Reserve Bank of St. Louis.
Lt
WORD/LATEX Document.
1 , 2 ,
and
in equation
(12)
above, and
1 , 2 ,
and
3 .
1 , 2 ,
and
3 ?
1 , 2 , and 3
and
Y : Yi = 30,
the CLRM:
(a) Find
b1
and
b2
r2
and
2 .
(e) Based on the condence intervals in (d), do you accept or reject the hypothesis that
2 = 0?
6
2. In examining the relationship between the unemployment rate and the growth
rate of real GDP, Atems (2013) obtains the following results:
Yt =
0.85
se = (
0.03Ut
(0.0025)
(3.067)
where
Yt
Ut is
r2 = 0.9135
(13)
)
the unemployment rate.
r2
3. Are rent rates inuenced by the student population in a college town? To examine
this, Ansah, Jones,Tungara, and Whaley (2012) collrct data on the following
variables:
rent
in the U.S;
pop
avginc
pctstu
- the
(14)
(a) State the null hypothesis that size of the student body relative to the population has no ceteris paribus eect on monthly rents. State the alternative
hypothesis that there is an eect.
and
2 ?
(c) Using data for 1990 for 64 college towns, suppose Ansah, Jones,Tungara,
and Whaley (2012) estimate the following:
d
log(rent)
= 0.043 + 0.066log(pop) + 0.507log(avginc) + 0.0056pctstu
se
(0.844)
(0.039)
(0.081)
(0.0017)
What is wrong with the statement: A 10% increase in population is associated with a 6.6% increase in rent?