EMPIRICAL

Question 1

OLS properties

Answer 1

• The OLS estimator is unbiased in both small sample and large sample.
• OLS is BLUE
• OLS generates consistenct estimators.
• The OLS estimator is unbaised, which means E(B)= B

Question 2

Error term?

Answer 2

The error term follows a normal distribution. This is required for parameter testing

The error term has a constant covariance. This is required for efficiency

The error term has a zero mean. This is required for unbaisedness

The error term is statistically independent of one another. This is required for efficiency.

There is no correlation between the error term and the independent variables. This is required for unbaisedness.

Question 3

event study

Answer 3

The expected normal returns can be estimated by several models, e.g. constant mean models, market models and mulit market model.

The parameters that used to calculate the expected normal returns for the event window are estimated over the estimation window.

Question 3

Corr and regression analysis

Answer 3

In correlation analysis, we treat the dependant variable and the independant variables in a completely symmetrical way.

In regression analysis, we assume that the independent variables are non-stochastic, or have fixed values.

In regression analysis, we assume that changes in the independent variables cause the changes in the dependent variable.