What are the seven characteristics that all living things share? Give examples of each characteristic (try to come up with new examples not found in the bookl). What are cells?….
Explain the term ‘parameter structural stability’?
(a) Explain the term ‘parameter structural stability’?
(b) A financial econometrician thinks that the stock market crash of October 1987 fundamentally changed the risk–return relationship given by the CAPM equation. He decides to test this hypothesis
using a Chow test. The model is estimated using monthly data from January 1980–December 1995, and then two separate regressions are run for the sub-periods corresponding to data before and after the crash. The model is
so that the excess return on a security at time t is regressed upon the excess return on a proxy for the market portfolio at time t. The results for the three models estimated for shares in British Airways
(BA) are as follows:
(c) What are the null and alternative hypotheses that are being tested here, in terms of a and ß?
(d) Perform the test. What is your conclusion?