One of the theories regarding initial public offering (IPO) pricing is that the initial return y (change from offer to open price) on an IPO depends on the price revision x (change from pre-offer to offer price). Another factor that may influence the initial return is whether or not it is a high tech firm. Consider the data on 264 IPO firms from January 2001 through September 2004; the entire data set, labeled IPO_Prfcfng, can be found on the text website.

a. Estimate y = β₀ + β₁x + β₂d + ε where the dummy variable d equals 1 for firms that are high-tech. Use the estimated model to predict the initial return of a high-tech firm with a 10% price revision. Find the corresponding predicted return of a firm that is not high-tech.

b. Estimate y = β₀ + β₁x + β₂d + ε where the dummy variable d equals 1 for firms that are not high-tech. Use the estimated model to predict the initial return of a high-tech firm with a 10% price revision. Find the corresponding predicted return of a firm that is not high-tech.

c. In the above two models, determine if the dummy variable is significant at the 5% level.

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Initial Return (%) 33.93 18.68 Price Revision (%) High-Tech? 7.14 No 0 -26.39 No 0 0.08 -29.41 Yes