Question

A researcher obtained the ordinary least squares (OLS) estimates for a Ghanaian firm's stock price using 120 observations from 1980 ml to 1989 m 12 (All variables in logarithms) as:

In S_t = 0.87 -054 In p_t + 0.65 In y_t + 0.34 In r_t - 0.32 In m_t

Standard errors:

p_t = (1.06)

y_t = (0.24)

r_t = (0.12)

m_t = (0.24)

Adjusted R²=0.34, RSS = 1.24, F₁₁₅⁴ =3.75

S_t are the log of the stock price, p_t is the log of profit, y_t is the log of its output in Ghana, r_t is the log of expenditure on research and development and m_t is the log of expenditure on marketing. Figures in parentheses are standard errors and RSS is the Residual Sum of squares.

Required:

(a) Interpret fully the regression results.

(b) Briefly evaluate the reasons behind including p_t and y_t as explanatory variables in the regression

(c) What is the explanatory power of the regression?

(d) Test, whether each coefficient equals 0, at the 5% level of significance

(e) Using a t-test, does the coefficient on the variable In y_t = 1?

(f) What are the policy implication of the result

Answer 1