A researcher has data on the daily percentage returns tr on the New York stock exchange...

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A researcher has data on the daily percentage returns tr on the New York stock exchange index over the last 100 days of trading (i.e, the researcher's sample of returns is 100). He decides to estimate an MA(1) model for returns i.e. 11tttrcuue-=++ and to save the estimated residuals ".tu (a) He decides to obtain the ACF of the squared residuals 2".tu What features of the return data could the researcher learn by doing this? (1 mark) (b) The researcher decides to perform an LM test for fifth- order ARCH effects. Write down the null and alternative hypothesis for this test, a description of any regression you would run, an explanation of how you would construct the test statistic, a statement on the distribution of the test statistic under the null hypothesis, the 5% critical value for the test statistic, and what you would conclude if the null is rejected. A researcher has data on the daily percentage returns tr on the New York stock exchange index over the last 100 days of trading (i.e, the researcher's sample of returns is 100). He decides to estimate an MA(1) model for returns i.e. 11tttrcuue-=++ and to save the estimated residuals ".tu (a) He decides to obtain the ACF of the squared residuals 2".tu What features of the return data could the researcher learn by doing this? (1 mark) (b) The researcher decides to perform an LM test for fifth- order ARCH effects. Write down the null and alternative hypothesis for this test, a description of any regression you would run, an explanation of how you would construct the test statistic, a statement on the distribution of the test statistic under the null hypothesis, the 5% critical value for the test statistic, and what you would conclude if the null is rejected.

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The researcher can learn about the volatility of the return data from the ACF of the squared ... View the full answer