Question

In: Statistics and Probability

Marge N. O’Hara, a senior analyst for a large stock brokerage has been tasked to forecast...

Marge N. O’Hara, a senior analyst for a large stock brokerage has been tasked to forecast the weekly closing stock prices for this blue-chip stock for the first four weeks of next year. You are assigned to provide technical support to Ms. O’Hara.

Weekly closing stock prices for all 52 weeks of this year for this blue-chip stock are reported in units of dollars ($).

3.    a.   Perform a simple linear regression of the weekly closing stock prices data on only time. (Hint: Use the week counter as the independent variable.)

Present the output regression report.

b.   State the equation of this trend line.

c.   In terms of goodness-of-fit measures, how good is this model? Why? In particular,

1. State the numerical value of the coefficient of correlation and its interpretation in the specific context of this problem.

2. State the numerical value of the coefficient of determination and its interpretation in the specific context of this problem.

3. State the numerical value of the standard error of the regression and its interpretation in the specific context of this problem.

d.   Perform a hypothesis test to determine the significance of this model. State your decision and conclusion. (Be complete and specific.)

Specifically, is the weekly closing stock price data significantly trended in time? Why? (Be complete and specific.)

e.   State the RMSE of this model.

f.    Using this time series regression, calculate and state the forecasts for the weekly closing stock price expected for the first four weeks of next year (weeks 53, 54, 55, and 56).

week, t stock price, y
1 267
2 267
3 268
4 264
5 263
6 260
7 256
8 256
9 252
10 245
11 243
12 240
13 238
14 241
15 244
16 254
17 262
18 261
19 265
20 261
21 261
22 257
23 268
24 270
25 266
26 259
27 258
28 259
29 268
30 276
31 285
32 288
33 295
34 297
35 292
36 299
37 294
38 284
39 277
40 279
41 287
42 276
43 273
44 270
45 264
46 261
47 268
48 270
49 276
50 274
51 284
52 304

Solutions

Expert Solution

We enter the data in excel and then goto data > data analysis tab and select regression

Please see the detailed screenshot below

b. State the equation of this trend line.

The regression equation is formed using the coefficients as

y = 251.11 +0.6443*t

c. In terms of goodness-of-fit measures, how good is this model? Why? In particular,


1. State the numerical value of the coefficient of correlation and its interpretation in the specific context of this problem.

The coefficient of correlation is 0.6178 , this means that the variables y and t are moderatley correlated in the positive direction . when one increases the other also increases


2. State the numerical value of the coefficient of determination and its interpretation in the specific context of this problem.


The coefficient of determintation is 0.3816 , this means that the model is able to explain 38.16 % variation in the value of y due to variation in t


3. State the numerical value of the standard error of the regression and its interpretation in the specific context of this problem.

The standard error value is 12.55 , this means the error we would see while making a prediction


d. Perform a hypothesis test to determine the significance of this model. State your decision and conclusion. (Be complete and specific.)


The hypothesis is
H0 : the model is not signficant
H1 : the model is statistically signficant

we check the p value signficant f which is 1.06409E-06
much less than 0.05 , hence we reject the null hypothesis and conclude that the model is statistically signficant


Please note that we can answer only 4 subparts of a question at a time , as per the answering guidelines


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