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Financial Econometrics: Regression Analysis

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3 views1 page

Financial Econometrics: Regression Analysis

Uploaded by

王曉明
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Financial Econometrics. In-Class exercise.

Name (ID):

March 1, 2024

1. Simple linear regression assumptions:


SR1 : yi = β1 + β2 xi + ϵi , i = 1, . . . , N
SR2 : E(y|x) = β1 + β2 x
SR3 : var(y|x) = σ 2
SR4 : cov(yi , yj ) = 0
SR5 : The variable x is not random and must take at least two different values.
SR6 : ei |x ∼ N (0, σ 2 )

2. Explain what condition the least square estimates need to satisfy?


Solution:
Define the sum of squares: X
S(β1 , β2 ) = (yi − βi − β2 xi )2
Least squares estimate b1 , b2 satisfy

b1 , b2 = arg min S(β1 , β2 )


β1 ,β2

3. Write down the formula of the least square estimates.


Solution: P
(xi − x̄(yi − ȳ))
b2 = P ; b1 = ȳ − b2 x̄
(xi − x̄)2

4. Write down the sampling distribution of the least squares estimators.


Solution: If SR6 holdes, we have

σ 2 x2i
P
b1 ∼ N (β1 , P )
(xi − x̄)2
σ2
b2 ∼ N (β2 , P )
(xi − x̄)2

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