The following table is a portion of the regression


In an attempt to "time the market," a financial analyst studies the quarterly returns of a stock. He uses the model y = β0 + β1 d1 + β2d2 + β3d3 + ε where y is the quarterly return of a stock, d1 is a dummy variable that equals 1 if quarter 1 an d0 otherwise, d2 is a dummy variable that equals 1 if quarter 2 and 0 otherwise, and d3 is a dummy variable that equals 1 if quarter 3 and 0 otherwise. The following table is a portion of the regression results.

835_portion of the regression results.png

a. Given that there are four quarters in a year, why doesn't the analyst include a fourth dummy variable in his model?

b. At the 5% significance level, are the dummy variables individually significant? Explain. Is the analyst able to obtain higher returns depending on the quarter?

Request for Solution File

Ask an Expert for Answer!!
Basic Statistics: The following table is a portion of the regression
Reference No:- TGS02594176

Expected delivery within 24 Hours