You have collected data on monthly profits of a group of traders over time and you wish to model the evolution of trading profits and its dependence on traders’ characteristics, including gender, education, years of experience, volume of trades and past trades performances. Write a detailed description on how you would set up such a regression model and which steps you would conduct to obtain the best possible model including all the diagnostic tests you would run to make sure that the model is robust. Be very careful in explaining how you would identify the impact of dummy explanatory variables on the dependent variable of interest. Suggest how the regression model could be improved by the use of non -linearities including different functional forms or GARCH effects. You may also list new explanatory variables to add to the model providing a justification for your choice. I have known the applicant for the past three academic years.

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There are many ways to set up a regression model to examine the evolution of trading profits and its dependence on traders characteristics One way would be to use a linear regression model with the de... View the full answer