UniversityEssayServices

(a) Explain the term ‘parameter structural stability’?

(b) A financial econometrician thinks that the stock market crash of October 1987 fundamentally changed the risk–return relationship given by the CAPM equation. He decides to test this hypothesis

using a Chow test. The model is estimated using monthly data from January 1980–December 1995, and then two separate regressions are run for the sub-periods corresponding to data before and after the crash. The model is

so that the excess return on a security at time t is regressed upon the excess return on a proxy for the market portfolio at time t. The results for the three models estimated for shares in British Airways

(BA) are as follows:

1981M1–1995M12

1981M1–1987M10

1987M11–1995M12

(c) What are the null and alternative hypotheses that are being tested here, in terms of a and ß?

(d) Perform the test. What is your conclusion?

Found something interesting ?

• On-time delivery guarantee
• PhD-level professional writers
• Free Plagiarism Report

• 100% money-back guarantee
• Absolute Privacy & Confidentiality
• High Quality custom-written papers

Related Model Questions

Feel free to peruse our college and university model questions. If any our our assignment tasks interests you, click to place your order. Every paper is written by our professional essay writers from scratch to avoid plagiarism. We guarantee highest quality of work besides delivering your paper on time.

Sales Offer

Coupon Code: SAVE25 to claim 25% special special discount
SAVE