Stocks and bonds. How is the flow of investors' money into stock mutual funds related to the flow of money into bond mutual funds? Table 10.5 shows the net new money flowing into stock and bond mutual funds in the years 1985 to 2008, in billions of dollars. "Net" means that funds flowing out are subtracted from those flowing in.
If more money leaves than arrives, the net flow will be negative. To eliminate the effect of inflation, all dollar amounts are in "real dollars" with constant buying power equal to that of a dollar in the year 2000.
(a) Make a scatterplot with cash flow into stock funds as the explanatory variable. Find the least-squares line for predicting net bond investments from net stock investments. What do the data suggest?
(b) Is there statistically significant evidence that there is some straight-line relationship between the flows of cash into bond funds and stock funds? State hypotheses, give a test statistic and its P-value, and state your conclusion.
(c) Remove the data for 2008 and refit the remaining years. Is there now statistically significant evidence of a straight-line relationship?
(d) How would you report these results in a manuscript? In other words, how would you handle the change in statistical significance caused by this one observation?
