(Round intermediate calculations to at least 4 decimal places.) One of the theor

Question

(Round intermediate calculations to at least 4 decimal places.)

One of the theories regarding initial public offering (IPO) pricing is that the initial return y (change from offer to open price) on an IPO depends on the price revision x (change from pre-offer to offer price). Another factor that may influence the initial return is whether or not it is a high-tech firm. The following table shows a portion of the data on 264 IPO firms from January 2001 through September 2004; the entire data set, can be found on the excel link.

Yes  

Estimate y  = o + 1x + 2d + where the dummy variable d equals 1 for firms that are high-tech. (Round your answers to 2 decimal places.)

Use the estimated model to predict the initial return of a high-tech firm with a 10% price revision. (Round your answer to 2 decimal places.)

Find the corresponding predicted return of a firm that is not high-tech. (Round your answer to 2 decimal places.)

Estimate y =o + 1x + 2d + where the dummy variable d equals 1 for firms that are not high-tech. (Round your answers to 2 decimal place.)

Use the estimated model to predict the initial return of a high-tech firm with a 10% price revision. (Round your answer to 2 decimal places.)

Find the corresponding predicted return of a firm that is not high-tech. (Round your answer to 2 decimal places.)

In the above two models, determine if the dummy variable is significant at the 5% level.

(Round intermediate calculations to at least 4 decimal places.)

One of the theories regarding initial public offering (IPO) pricing is that the initial return y (change from offer to open price) on an IPO depends on the price revision x (change from pre-offer to offer price). Another factor that may influence the initial return is whether or not it is a high-tech firm. The following table shows a portion of the data on 264 IPO firms from January 2001 through September 2004; the entire data set, can be found on the excel link.

Explanation / Answer

a-1)

The regression equation is
initial Return (%) = 6.51 + 0.0954 Price Revision (%) + 3.88 Heigh-tech

a-2) Initial return of a high-tech firm  = 11.350

a-3)   Predicted return of a non high-tech firm is 7.467

b-1)

The regression equation is
initial Return (%) = 6.51 + 0.0954 Price Revision (%) - 3.88 Heigh-tech

b-2)   Initial return of a high-tech firm  = 7.467

b-3)   Predicted return of a non high-tech firm is  11.350  

c) Correct answer: Option (a) The dummy variable is significant since the p-value is less than 0.05.

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