Question

The following model was fitted to data on 90 German chemical companies:
where the numbers in parentheses are estimated coefficient standard errors and
y = share price
x1 = earnings per share
x2 = funds flow per share
x3 = dividends per share
x4 = book value per share
x5 = a measure of growth
a. Test at the 10% level the null hypothesis that the coefficient on x1 is 0 in the population regression against the alternative that the true coefficient is positive.
b. Test at the 10% level the null hypothesis that the coefficient on x2 is 0 in the population regression against the alternative that the true coefficient is positive.
c. The variable X2 was dropped from the original model, and the regression of Y on (X1, X3, X4, X5) was estimated. The estimated coefficient on X1 was 2.95 with standard error 0.63. How can this result be reconciled with the conclusion of part a?


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  • CreatedJuly 07, 2015
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