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Building and Testing a Multiple Linear Regression Model 97 correlation using the residual pairs et and et− 1 as the observations ...

98 The Basics of financial economeTrics The denominator of the test is simply the sum of the squares of the error terms; the num ...

Building and Testing a Multiple Linear Regression Model 99 values also depend on the sample size and the number of independent v ...

100 The Basics of financial economeTrics series typically exhibit structures that are more complex than those pro- vided by ARMA ...

Building and Testing a Multiple Linear Regression Model 101 of the independent variables used in the regression model (e.g., the ...

102 The Basics of financial economeTrics ■ (^) Autocorrelation of residuals is quite common in time series financial data. In ti ...

103 CHAPTER 5 Introduction to time Series Analysis A fter reading this chapter you will understand: ■ (^) What is meant by time ...

104 The Basics of financial economeTrics variables as well as lagged values of the series itself or other quantities. These latt ...

Introduction to Time Series Analysis 105 (^) xTtt=+ZStt++Ut (5.1) where Tt = trend Zt = cyclical term St = seasonal term Ut = di ...

106 The Basics of financial economeTrics stochastic.^2 Instead of the cyclical term Zt and the disturbance Ut, one some- times i ...

Introduction to Time Series Analysis 107 FIguRE 5.2 Decomposition of Time Series into Trend T, Seasonal Component S, and Irregul ...

108 The Basics of financial economeTrics The coefficient of the irregular term is φ = 0.2850 indicating that the previous period ...

Introduction to Time Series Analysis 109 as quantities at certain points in time. However, it may sometimes be more convenient t ...

110 The Basics of financial economeTrics correction.^5 The theory behind them is not trivial. In particular, the error correctio ...

Introduction to Time Series Analysis 111 Application to S&P 500 Index Returns As an example to illustrate equation (5.4), co ...

112 The Basics of financial economeTrics TAblE 5.2 Daily S&P 500 Stock Index Values and Daily Changes between November 3, 20 ...

Introduction to Time Series Analysis 113 following period’s stock price conditional on this period’s information will contain a ...

114 The Basics of financial economeTrics ■ (^) Each observation comprising a time series is a pair of the components, time and v ...

115 A fter reading this chapter you will understand: ■ (^) What a categorical variable is. ■ (^) How to handle the inclusion of ...

116 The Basics of financial economeTrics Independent Categorical Variables Categorical input variables are used to cluster input ...