Instructions: ·Answer all questionson this documentunder the relevant headings. ·Approximately half the available marks will be allocated for getting the correct numerical/mathematical answers. All...

3305AFE APPLIED ECONOMETRICS TIMED ASSIGNMENT
25 MARKS – APPROXIMATE LENGTH: 500-1000 WORDS
DUE MAY 4th 8PM BRISBANE TIME
Lochlan Charlton
S5092763
Instructions:
· Answer all questions on this document under the relevant headings.
· Approximately half the available marks will be allocated for getting the co
ect numerical/mathematical answers. All other marks will relate to the exposition/interpretation of your econometric work.
· Upload your completed assignment to the submission portal on the Learning at Griffith website by 8pm May 4, 2021.
· To complete the technical questions, you may write equations by hand, or use the equation editor in MS Word. Graphically constructed answers may be drawn by hand, or produced in a software package such as MS Paint.
· The content covers work from the first four weeks (lectures 1-4) and the associated workshops.
Question 2.    [5 Marks]
Finance professionals are often interested in minimizing risk in their portfolios by investing in assets that react differently under varying market conditions. The idea is that by buying some securities that are positively co
elated with
oader market movements, and some that are negatively associated with the market, the combined risk exposure will be reduced.
This type of risk can be measured for a share using the market beta - a parameter from a regression model designed to measure the association between the return on the asset and the overall market performance. Market betas can be calculated using the following equation:
where is the return on the asset, and is the market return. A share with a high beta will move strongly with the market, while a beta closer to zero will be less sensitive to market fluctuations. Shares with negative betas will move in the opposite direction to the
oader market.
Table 1 below gives an estimate for a US firm that manufactures textiles.
Table 1. Asset Returns and Market Returns - Textiles
    Dependent Variable: ASSET RETURN
    
    
    Method: Least Squares
    
    
    
    
    
    Sample: 1 32
    
    
    
    Included observations: 32
    
    
    
    
    
    
    
    
    
    
    
    
    Variable
    Coefficient
    Std. E
o
    t-Statistic
    Prob.  
    
    
    
    
    
    
    
    
    
    
    C
    0.332108
    0.145082
    2.289111
    0.0293
    MARKET RETURN
    0.421084
    0.173615
    2.425387
    0.0215
    
    
    
    
    
    
    
    
    
    
    R-squared
    0.163938
        Mean dependent va
    0.472250
    Adjusted R-squared
    0.136069
        S.D. dependent va
    0.809924
    S.E. of regression
    0.752807
        Akaike info criterion
    2.330447
    Sum squared resid
    17.00157
        Schwarz criterion
    2.422055
    Log likelihood
    -35.28715
        Hannan-Quinn criter.
    2.360812
    F-statistic
    5.882501
        Du
in-Watson stat
    2.555932
    Prob(F-statistic)
    0.021521
    
    
    
    
    
    
    
    
    
    
    
    
    
· Do your asset returns move with the market, against the market, or are unco
elated with the market? Briefly explain.
Yes the asset returns move with the market. Because the slop coefficient co
esponding to market has the positive value i.e. 0.421 that means with the increment of one unit in the market there will be increment of 0.421 times in the average value of asset return and this result is significant (p-value <0.05).
· Calculate a 90% confidence interval for the market beta ( using information drawn from the output. Show all working and provide an interpretation for your result.
0.410 to 0.4540
· Test the null hypothesis that there is no link between the returns on your specific asset () and the return on the market () at Give the null and alternative hypotheses, a test (t) statistic, critical value, p-value and a conclusion.
Because the slop coefficient co
esponding...