Question 2 A researcher models the Chinese stock returns series, Yt, as an AR(1)

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Question 2 A researcher models the Chinese stock returns series, Yt, as an AR(1) process and obtains the following results. The standard errors are given in parentheses. Y, = 0.826 (0.295) 0.79; n- 185 0.569 Y1 (0.113) R2 a. Is the intercept term significant to the model? Conduct a relevant hypothesis test to answer this question b. Is the slop c. What is the necessary condition that needs to be satisfied to achieve covariance stationarity? Is e significant to the model? Conduct a relevant hypothesis test to answer this question. at condition satisfied in this model? Conduct a relevant hypothesis test to answer this question. ompute the mean-reverting level for the Japanese stock returns series and interpret what this number means. e. Suppose the true underlying data generating process for the stock returns series is in fact the AR(1) process shown above. What does the correlogram for the AutoCorrelation Function (ACF) of Y look like up to 6 lags? f. Suppose the true underlying data generating process for the stock returns series is in fact the AR(1) process shown above. What does the correlogram for the Partial AutoCorrelation Function (PACF) of look like up to 6 lags?

Explanation / Answer

Solutions would be

a) Not Significant as the p value of 0.295 is very large

b) Not Significant as the p value of 0.113 is very lar

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