This dataset tracks monthly performance of stock in Apple from January 1990 through December 2011, a total of 264 months. The data include returns on the entire stock market, Treasury Bills (short-term, 30-day loans to the government), and inflation. (The column Market Return is the return on a value-weighted portfolio that purchases stock in proportion to the size of the company rather than one of each stock.) Formulate the SRM with Apple Return as the response and Market Return as the explanatory variable.
(a) Identify the time period associated with each of the two outliers highlighted in this scatterplot. What’s special, if
anything, about these two months?
(b) Which observation is more important to the precision of the estimated slope? That is, if we must drop one
of these two but want to keep the standard error of the slope as small as possible, which month should be
(c) Explain why the month that keeps the t-statistic large is more important than the other month.
(d) Explain why removing either observation has little effect on the least squares ft.

  • CreatedJuly 14, 2015
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