Bid-offer Spread = Offer price – Bid price 2. Correcting Seasonality in Time Series Models: Smoothing Past Values with n-Period Moving Average = Using Dickey-Fuller Test = xt - x t-1 = b0 + (b1 -1) x t-1 + εt 8. Correcting Random Walk = yt = xt - x t-1ħ. ![]() Random Walk without drift = xt = x t1 + εt where, b0 = 0 and b1 = 1.pth-order autoregressive AR (p) = xt = b0 + b1 x t-1 + b2 x t-2 + ….+ bp x t-p +εt 4. ![]() First order autoregressive AR (1) = xt = b0 + b1 x t-1 + εt.Predicted/fitted value of yt in period (T + 1) =.Random walk with a drift = xt = b0 + x t-1 + εt where, b0 ≠ 0 and b1 = 1 By taking first difference yt = xt - x t-1 = b0 + εt Durbin-Waston Test = □□ = įor Large Sample size DW Statistic (d) = d ≈ 2 (1 – r) HA = Conditional Heteroskedasticity exists.H0 = No conditional Heteroskedasticity exists.SST = SSE + SSR(or RSS) Hypothesis Testing: H1: b1 ≠ 0 (linear relationship does exist) t-test (for normally distributed variables) = t= (df numerator = k = 1) (df denominator = n – k – 1 = n – 2)ģ. Linear Regression = Yi = b0 + b1Xi + εi, Standard Error of Estimate SEE = SR = SSR (for single independent variable R2 = r2) 7. Reading 10: Multiple Regression & Issues in Regression Analysis 1. ![]() Intercept (b0) = b0 = y − b1 x = Slope or regression coefficient = b1 = 345(O,P) 5
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