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The coursework option consists of data manipulation and estimation in EViews, analysis and interpretation
Estimate the following model using OLS in Eviews,State/interpret the magnitude and statistical significance of the slope coefficient estimates and the statistical significance and fit of the overall regression,critically discuss the problem of heteroscedasticity in an estimation setting. Be sure to mention the consequences of heteroscedasticity on the properties of OLS estimators. Sort your entire sample on UK3m in Eviews, and use the upper and lower 1/3 of the sorted sample to conduct a Goldfeld-Quandt test. Is there evidence for heteroscedasticity in your model above based on the Goldfeld-Quandt test results? Briefly comment.
Perform a White test for heteroscedasticity and comment on your results.
Next, re-estimate the model using White-corrected variances. Comment on the differences in your White-corrected output and the one in Question (2).
Reading:
Text Book Required:
Gujarati and Porter, Essentials of Econometrics, 4th Edition, McGraw-Hill.
Koop, Analysis of Financial Data, Wiley.
Supplementary textbook: Brooks, Introductory Econometrics for Finance, 2nd Edition, Cambridge University Press.
This is book required for this subject recommended by teacher.
BE333 Spring 2015 Coursework – Option 1 – Sina Erdal
The coursework option consists of data manipulation and estimation in EViews, analysis and interpretation. The coursework must be written up individually.
In your answers to the questions below, you should present your EViews equation estimation output as it would be in published academic papers. (Examine several such papers, the approaches to presentation are fairly standard.) Raw EViews regression output should be included only in an Appendix. You should also include the studies/books you have utilised in the analyses in a “References” section.
Open the file named “coursework 1 data 2015” on Moodle. This file contains monthly data from January 1979 to January 2015 for the following four series from Bank of England’s Statistics section:
UK3m à Sterling 3 month mean interbank lending rate
US3m à Level of discount rate, 3 month Treasury Bills, US Dollar
Fwd6 à Forward exchange rate, 6 month contract, US$ into Sterling
Spot à The spot exchange rate, US$ into Sterling
Format the Excel file so that only the variable names remain at the top and import it into Eviews. Generate the series “Fwddisc” as
Fwddisc = Fwd6 – spot
This the forward discount or premium in the GBPUSD forward currency market for 6-month contracts.
Question 1) (25 points) Report the descriptive statistics for all of your series, including fwddisc. Briefly comment on these statistics.
Question 2) (25 points) Estimate the following model using OLS in Eviews:
fwddisct = a + b1 * US3mt-1 + b2 * UK3mt-1 + ei
Comment in detail on your regression output. State/interpret the magnitude and statistical significance of the slope coefficient estimates and the statistical significance and fit of the overall regression. Keep in mind that this is a predictive regression, you are using this month’s values for the independent variables to forecast next month’s value for the dependent variable.
Question 3) (25 points) In an essay of less than 200 words, critically discuss the problem of heteroscedasticity in an estimation setting. Be sure to mention the consequences of heteroscedasticity on the properties of OLS estimators.
Question 4) (25 points) Sort your entire sample on UK3m in Eviews, and use the upper and lower 1/3 of the sorted sample to conduct a Goldfeld-Quandt test. Is there evidence for heteroscedasticity in your model above based on the Goldfeld-Quandt test results? Briefly comment.
Perform a White test for heteroscedasticity and comment on your results.
Next, re-estimate the model using White-corrected variances. Comment on the differences in your White-corrected output and the one in Question (2).
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