Suppose P1, is the stock price index for country 1, P2, is the stock price index...

 

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Suppose P1, is the stock price index for country 1, P2, is the stock price index for country 2 and P3, is the stock price index for country 3. The researcher believes that the stock price indexes are determined as: P1t = P1t-1 + P2t = 0.5P1t-1 +Vt P3t = P1t-1 + Wt where &t, Vt and we are white noise error terms. (i) Does the researcher believe that P1, P2t and P3, are, respectively, I(1) series? Justify your answer. (1 mark) (ii) (iii) t Does the researcher expect that a regression of P3, on a constant and P1, will give spurious results (i.e., that it is a spurious regression)? Justify your answer (1 mark) t Does the researcher expect P2₁ and P3, to be cointegrated with each other? Justify your answer. (1 mark) Suppose P1, is the stock price index for country 1, P2, is the stock price index for country 2 and P3, is the stock price index for country 3. The researcher believes that the stock price indexes are determined as: P1t = P1t-1 + P2t = 0.5P1t-1 +Vt P3t = P1t-1 + Wt where &t, Vt and we are white noise error terms. (i) Does the researcher believe that P1, P2t and P3, are, respectively, I(1) series? Justify your answer. (1 mark) (ii) (iii) t Does the researcher expect that a regression of P3, on a constant and P1, will give spurious results (i.e., that it is a spurious regression)? Justify your answer (1 mark) t Does the researcher expect P2₁ and P3, to be cointegrated with each other? Justify your answer. (1 mark)

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Yes based on the researchers belief that the stock price indexes are determined by the equations P1t ... View the full answer