Introductory Econometrics 4th Edition by Jeffrey Wooldridge

Exercise 13

In Example 11.4, it may be that the expected value of the return at time t, given past returns, is a quadratic function of return t-1. To check this possibility, use the data in NYSE.RAW to estimate returnt = 0 + 1 return t-1 + 2 return 2 t-1 + u t ; report the results in standard form.
(ii) State and test the null hypothesis that E(return t return t-1 ) does not depend on return t-1. (Hint: There are two restrictions to test here.) What do you conclude
(iii) Drop return 2 t-1 from the model, but add the interaction term return t-1 •return t-2. Now test the efficient markets hypothesis.
(iv) What do you conclude about predicting weekly stock returns based on past stock returns