Question: Quantitative Methods for Finance and Investment. (i) Write down the equations for a VAR(2) model for two variables, SP and HSE. (ii) Why have VARs

Quantitative Methods for Finance and Investment.

(i) Write down the equations for a VAR(2) model for two variables, SP and HSE.

(ii) Why have VARs become popular for application in economics and finance? Discuss any weaknesses you perceive in the VAR approach to econometric modelling.

(iii) Two researchers, using the same set of data but working independently, arrive at different lag lengths for the VAR equation. Describe and evaluate two methods for determining which of the lag lengths is more appropriate.

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