Economics and Finance
Stock brokers and even casual investors are always searching for better methods to predict the movement in the price of stocks. The "skirt-length theory" suggests that if women's skirts are short, then the markets will rise. If skirts are long, then the markets will be headed down. To test this theory, a random sample of years was obtained, and the length of women's skirts was measured (x, in inches) for a typical fashion model. The change in the S&P 500 market index ( y) was also recorded for that year. The data are given in the following table.
a. Find the estimated regression line, and complete the ANOVA table.
b. Conduct an F test for a significant regression. Use a significance level of 0.01.
c. Construct a scatter plot of the data, and find the sample correlation coefficient.
d. Using your answers to parts (b) and (c), do you think the skirt-length theory is worth using? Justify your answer.