10. E.031 How are returns on common stocks in and overseas returns by the annual

ID: 3360315 • Letter: 1

Question

10. E.031 How are returns on common stocks in and overseas returns by the annual rate of return on index B. Both are recorded in overseas markets related to returms in one countries markets? Consider measuring the countries returns by the annual rate of return on the index A percents. We will regress the B returns on the A returns for the years 1993 to 2014, Here is part of the The repression equation is B--1 i3 + 0.819A. Complete the analysis of wine table by nmg in me meng espin er·sw th hedeN places and your answers for SS and MS to one decimal place Analyais of Variance Source Regression Residual Eezor Total MS 5552.1 10078.3

Explanation / Answer

Solution:

We are given annual rate of returns for the years 1993 to 2014.

This data is given for 22 years. (1993 to 2014 are 22 years including 1993 and 2014)

So, n = 22

Total degree of freedom is given as below:

Total DF = n – 1 = 22 – 1 = 21

Regression DF = 1

Residual DF = Total DF – Regression DF = 21 – 1 = 20

SSE = SST – SSR

SSE = 10078.3 – 5552.1

SSE = 4526.2

MSR = SSR/DF for Regression = 5552.1/1 = 5552.1

MSE = SSE / DF for residual = 4526.2/20 = 226.3

F = MSR/MSE = 5552.1/226.3 = 24.53

P-value = 0.000076617

(by using F-table or excel)

Completed ANOVA table is given as below:

Source

P-value

Regression

5552.1

24.53

0.000076617

Residual error

4526.2

226.3

Total

10078.3