Question: The Dow Jones Industrial Average DJIA and the Standard

The Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 (S&P 500) indexes are used as measures of overall movement in the stock market. The DJIA is based on the price movements of 30 large companies; the S&P 500 is an index composed of 500 stocks. Some say the S&P 500 is a better measure of stock market performance because it is broader based. The closing price for the DJIA and the S&P 500 for 15 weeks, beginning with January 6, 2012, follow (Barron’s website, April 17, 2012).

a. Develop a scatter diagram with DJIA as the independent variable.
b. Develop the estimated regression equation.
c. Test for a significant relationship. Use α = .05.
d. Did the estimated regression equation provide a good fit? Explain.
e. Suppose that the closing price for the DJIA is 13,500. Predict the closing price for the S&P 500.
f. Should we be concerned that the DJIA value of 13,500 used to predict the S&P 500 value in part (e) is beyond the range of the data used to develop the estimated regressionequation?

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