Refer to Problem 3.22. In exercise Table 3.7 gives data on gold prices, the Consumer Price Index
Question:
In exercise
Table 3.7 gives data on gold prices, the Consumer Price Index (CPI), and the New York Stock Exchange (NYSE) Index for the United States for the period 1974 2006. The NYSE Index includes most of the stocks listed on the NYSE, some 1500-plus.
Table 3.7
a. Estimate the two regressions given there, obtaining standard errors and the other usual output.
b. Test the hypothesis that the disturbances in the two regression models are normally distributed.
c. In the gold price regression, test the hypothesis that β2 = 1, that is, there is a one to one relationship between gold prices and CPI (i.e., gold is a perfect hedge). What is the p value of the estimated test statistic?
d. Repeat step (c) for the NYSE Index regression. Is investment in the stock market a perfect hedge against inflation? What is the null hypothesis you are testing? What is its p value?
e. Between gold and stock, which investment would you choose? What is the basis of your decision?
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...
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