## Introductory Econometrics for Finance

Business

## Quiz 9 :

Modelling Volatility and Correlation

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Q01 Q01 Q01

Which of the following are probably valid criticisms of the Dickey Fuller methodology?
(I) The tests have a unit root under the null hypothesis and this may not be rejected due to insufficient information in the sample
(ii) the tests are poor at detecting a stationary process with a unit root close to the non-stationary boundary
(iii) the tests are highly complex to calculate in practice
(iv) the tests have low power in small samples

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Multiple Choice

B

Q02 Q02 Q02

Which of the following are problems associated with the Engle-Granger approach to modelling using cointegrated data?
(I) The coefficients in the cointegrating relationship are hard to calculate
(ii) This method requires the researcher to assume that one variable is the dependent variable and the others are independent variables
(iii) The Engle-Granger technique can only detect one cointegrating relationship
(iv) Engle-Granger does not allow the testing of hypotheses involving the actual cointegrating relationship.

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Multiple Choice

B

Q03 Q03 Q03

Consider the following vector error correction (VECM) model: y

_{t}= y_{t-}_{5}+ _{1}y_{t-}_{1}+ _{2}y_{t-}_{2}+ _{3}y_{t-}_{3}+ _{4}y_{t-}_{4}+ u_{t}Where y_{t}is a k 1 vector of variables, and u_{t}is a k 1 vector of disturbances. Which of the following statements is true of the VECM?Free

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Multiple Choice

D

Q22 Q22 Q22

Assume that you are trying to model the relationship between house prices and rents. If you find that both series are non-stationary and a linear combination of the two series is stationary, which of the following is true?
(I) Regressing the levels of house prices on the levels of rents could lead to spurious regressions
(II) House prices and rents are cointegrated
(III) An appropriate linear combination of house prices and rents is I(1)
(IV) House prices and rents are not cointegrated

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Multiple Choice