Question: If R programming is used, please attach the R commands. 3. Consider the monthly simple returns of the Decile 1, Decile 2, Decile 9, and

If R programming is used, please attach the R commands.

3. Consider the monthly simple returns of the Decile 1, Decile 2, Decile 9, and Decile 10 of U.S. stocks based on market capitalization. The data span is from January 1970 to December 2008. The data file is m-deciles08.txt.

(a) For the return series of Decile 2 and Decile 10, test the null hypothesis that the first 12 1 lags of autocorrelations are zero at the 5% level. Draw your conclusion.

(b) Build an ARMA model for the return series of Decile 2. Check the estimated model. Is the estimated model a good/adequate model? Write down the estimated model.

(c) Use the estimated ARMA model to produce 1- to 12-step-ahead forecasts of the series and the associated standard errors of forecasts.

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