a. Plot the data on profits and dividends and visually examine if the two time series are stationary.
b. Apply the unit root test to the two series individually and determine if the two series are stationary.
c. If the profits and dividends series are not stationary and if you regress dividends on profits, would the resulting regression be spurious? Why or why not? How do you decide? Show the necessary calculations.
d. Take the first differences of the two time series and determine if the first difference time series are stationary.
For Information: Refer to the data given in Table 12-2 (found on the textbook's Web site).