Recall that the Harvard Business School professors used regression to model the relative optimism (y) of the

Question:

Recall that the Harvard Business School professors used regression to model the relative optimism (y) of the analysts' 3-month horizon forecasts as a function of x1 = {1 if the analyst worked for a buy-side firm, 0 if the analyst worked for a sell-side firm} and x2 = number of days between forecast and fiscal year-end (i.e., forecast horizon). Consider the complete second-order model
E(y) = β0 + β1x1 + β2x2 + β3x1x2 +β4(x2)2 +β5x1(x2)2
a. What null hypothesis would you test to determine whether the quadratic terms in the model are statistically useful for predicting relative optimism (y)?
b. Give the complete and reduced models for conducting the test, part a.
c. What null hypothesis would you test to determine whether the interaction terms in the model are statistically useful for predicting relative optimism (y)?
d. Give the complete and reduced models for conducting the test, part c.
e. What null hypothesis would you test to determine whether the dummy variable terms in the model are statistically useful for predicting relative optimism (y)?
f. Give the complete and reduced models for conducting the test, part e.
For Information: Refer to the Financial Analysts Journal (Jul./Aug. 2008) comparison of earnings forecasts of buy-side and sell-side analysts, Exercise 12.90.