Case 4

Question 1

The β-estimate of the new model will be _____ than the β-estimate of the original model

Answer 1

smaller

Question 2

In the new model, the residuals for the outlier periods will be exactly equal to _____ as we
want the SSE to be _______

Answer 2

zero
as small as possible

Question 3

The Standard Error measures the extent to which…

Answer 3

the Estimate Beta will fluctuate across different samples

Question 4

H0: “Beta has been stable across the two subperiods distinguished here”

Answer 4

T-statistic of “Inter” allows to correctly examine the null

Question 5

H0: “Alpha has been stable across the two subperiods distinguished here”

Answer 5

P-value ⟶ Significance of “Break” in the “Coefficients” table
▪ T-value ⟶ t of “Break” in the ”Coefficients” table

Question 6

H0: “Both alpha and beta have been stable across the two subperiods distinguished here” =>ñ
𝛼̃ = 𝛽 = 0

Answer 6

Obtaining the correct p-value to test the H0 against the HA:
* 𝑃𝑎𝑟𝑡𝑖𝑎𝑙 𝐹 − 𝑇𝑒𝑠𝑡
g - # of variables in the reduced model
k - # of variables in the complete model

Question 7

Estimating β in the 2nd subperiod

Answer 7

Adding Market β and Inter β from the “Coefficients” table