Question

Many companies do not restrict themselves to operating inside any particular country, instead choosing to participate in the global economy, and stock market movements should reflect this reality. Consider data on the monthly percentage changes in stock market indexes (and one company), as shown in Table 11.3.18. In particular, the Hang Seng Index is for the Hong Kong Stock Exchange, the FTSE 100 Index is for companies on the London Stock Exchange, and the S&P 500 Index is primarily for the United States (companies are traded on either the NYSE Euronext or the NASDAQ Stock Exchanges).
a. Draw a scatterplot of the S&P 500 Index against the FTSE 100 Index and a scatterplot of the S&P 500 Index against the Hang Seng Index, and comment on any association you see in these country indexes.
b. Find and interpret the correlation between the S&P 500 Index and the FTSE 100 Index.
c. What percentage of the variation in the S&P 500 Index is explained by variations in the Hang Seng Index? How does this compare to the percentage of the variation in the S&P 500 Index explained by the FTSE 100? Base your answers on two separate regressions.
d. Test to see if there is a significant relationship between the S&P 500 and the FTSE 100 Indexes, and if there is a significant relationship between the S&P 500 and the Hang Seng.
e. Write a paragraph explaining and interpreting your results.


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  • CreatedNovember 11, 2015
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