Using monthly data for yt, the FTSE100 index, from January 1992 to December 2005, the following...

Transcribed Image Text:

Using monthly data for yt, the FTSE100 index, from January 1992 to December 2005, the following set of results were obtained: ŷt = 0.75, (0.21) 62 = 1.76 +0.07u²-1 +0.2402-1 +0.87u²-14-1 (0.57) (0.02) (0.12) (0.42) R² = 0.46 Values in () are the standard errors of the coefficient estimates and It-1 = 1 if ut-1 < 0, It-1 = 0 otherwise. Ot-1 is the conditional deviation. i. What role does the final term in the above conditional variance equation serve? ii. What is the interpretation of the estimated value of lagged conditional variance (0²-1), 0.24? With reference to conditional variance equation, if oz-₁ = 0.74, consider that ût-1 +0.5. Estimate the value of of, for a positive shock (+0.5) and a negative shock (-0.5). = Using monthly data for yt, the FTSE100 index, from January 1992 to December 2005, the following set of results were obtained: ŷt = 0.75, (0.21) 62 = 1.76 +0.07u²-1 +0.2402-1 +0.87u²-14-1 (0.57) (0.02) (0.12) (0.42) R² = 0.46 Values in () are the standard errors of the coefficient estimates and It-1 = 1 if ut-1 < 0, It-1 = 0 otherwise. Ot-1 is the conditional deviation. i. What role does the final term in the above conditional variance equation serve? ii. What is the interpretation of the estimated value of lagged conditional variance (0²-1), 0.24? With reference to conditional variance equation, if oz-₁ = 0.74, consider that ût-1 +0.5. Estimate the value of of, for a positive shock (+0.5) and a negative shock (-0.5). =

Answer rating: 100% (QA)

The final term in the conditional variance equation serves as a threshold indicator It is denoted as ... View the full answer