Introduction to Econometrics 3rd Edition by James Stock, James Stock

Exercise 12

Using the data set Growth described in Empirical Exercise 1, but excluding the data for Malta, carry out the following exercises.
a. Run a regression of Growth on TradeShare, YearsSchool , RevjGoups, Assassinations, and RGDP60. Construct a 95% confidence interval for the coefficient on TradeShare. Is the coefficient statistically significant at the 5% level
b. Test whether, taken as a group, YearsSchool, RevjCoups, Assassinations, and RGDP60 can be omitted from the regression. What is the p-value of the E-statistic
Exercise 1
Read the box "The 'Beta' of a Stock" in Section 4.2.
a. Suppose that the value of ß is greater than 1 for a particular stock. Show that the variance of ( R - R f ) for this stock is greater than the variance of (R m - R t ).
b. Suppose that the value of ß is less than 1 for a particular stock. Is it possible that variance of (R - R f ) for this stock is greater than the variance of (R m - R f ,) ( Hint: Don't forget the regression error.)
c. In a given year, the rate of return on 3-month Treasury bills is 3.5% and the rate of return on a large diversified portfolio of stocks (the S P 500) is 7.3%. For each company listed in the table in the box, use the estimated value of ß to estimate the stock's expected rate of return.