Question: Table 14.4.7 shows basic computer results from a Box Jenkins analysis of the daily percentage changes in the Dow Jones Industrial stock market index from

Table 14.4.7 shows basic computer results from a Box€“ Jenkins analysis of the daily percentage changes in the Dow Jones Industrial stock market index from July 31 to October 9, 1987, prior to the crash of 1987.
a. What kind of process has been estimated?
b. Write the model in a way that shows how the next observation is determined from the previous one. Use the actual estimated coefficients.
c. Which estimated coefficients are statistically significant?
d. Using 0 in place of all estimated coefficients that are not statistically significant, write down the model that shows how the next observation is determined from the previous one. What kind of process is this?
e. Write a brief paragraph summarizing your results as support for the randomwalk theory of market behavior.

TABLE 144.7 Results of a Box-Jenkins Analysis of Daily Percentage Changes in the Dow Jones Index Coefficient Autore gression Moving average Constant Mean Standard deviation of random noise Estimate -0.3724 -0.4419 -0.000925 -0.000674 Standard Error 1.7599 1.6991 0.002470 0.001799 t Ratio -0.21 -0:26 -037 -0.37 0.011950

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a This is an autoregressive movingaverage ARMA process because both terms are present ... View full answer

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