Financial Econometrics - Essay Example

Only on StudentShare

Extract of sample
Financial Econometrics

In 2003, the U.S. Securities and Exchange Commission (SEC) mentioned that the R-square of the regression analysis was insufficient to determine the effectiveness of hedging. In a speech by a professional accounting fellow from the office of the chief accountant of the U.S. Securities and Exchange Commission, stated that determination of hedge effectiveness should consider the slope of the coefficient of the regression analysis. This coefficient reflects the minimum variance hedge ratio.1
The interpretation of the regression slope coefficient is the average change in the dependent variable: real total expenditure on food for a unit increase in the independent variable: Real total expenditure on goods and services. The slope coefficient it 0.32, thus for every 1 unit change in real total expenditure on goods and services, there is a 0.32 unit change in real expenditure on food.
Omission of an important independent variable such as real price of food relative to other goods will result in the decreased ability of the model to predict the real total expenditures on food given the real total expenditures on food.
The independent variables used to predict 99.9% of the dependent variable: real consumption expenditure as indicated by the value of the adjusted-R Squared. ...
Download paper


Linear regression could be used to estimate the minimum-variance hedge ratio. The following approach has been extensively applied in the literature. The independent variable is the future return and the dependent variable the spot return to construct the following model:
Author : carson32

Related Essays

Financial Upheavals. Financial crisis
The aftermaths of any such business cycle may vary from being modest to remorseless hinging upon its magnitude and continuance. History show that the American economy has moved through periods of boom, recession and recovery. The years 1837, 1893 and 1929 help retrace the occurrence of three major depressions in United States (Calomiris 2010). The downturns of 1857, 1873, and 1907 are also referred in the history books (Rothbard 2002). The America of 1819 and the financial crisis its people went through was only the first of speculative cacoethes which is America's true national interest...
10 pages (2510 words) Essay
Investigation of evidence of the spread of the U.S. financial crisis and contagion to Europe, with focus on the UK
In this day and age of multinational businesses and unified regional and international financial systems, financial and economic crises have become particularly widespread, severe, and sudden, instantaneously crossing borders through the international banks that are invested in countries initially embroiled in the crisis. The weakening of the banks in other countries as a result of the contagion speeds up the spread of the crisis into other economies. While it is true that globalization is inevitable, it remains to be determined whether or not regulatory frameworks and infrastructures would be...
35 pages (8785 words) Dissertation
the perception on (financial) performance of a company from the point of view of a CEO/owner who sell his company and becomes a
Arguably, cases occur where an individual, owner, or CEO of a business decides to sell the company to a different owner and resolves to become one of the minority shareholders. Privatizing a publicly owned company can have not only profound experience for employees but also an emotional one (Yusuf, Nabeshima, and Perkins, 2006:62). Most econometrics agree that, changing an individual’s role from a CEO to just a minority shareholder may not always be that simple. A CEO turned a minority shareholder In fact, some of those who undergo such situations end up living a complicated life since they...
11 pages (2761 words) Essay
Economic Policy
They can influence in making decisions and in the monopoly of the authorized force. The government illustrates the fact that people are living in the community and personal autonomy must be constrained. Governments are created to increase the survival potentials of the people and they are directly involved in manipulating and managing all the regional economies. The government itself can make reforms on currencies and they ensure that the values of money will undermined by prohibiting counterfeiting. The government regulates most of the aspects in the economy and they stabilized it for the...
6 pages (1506 words) Essay
Empirical Techniques in Econometrics
Econometrics is the application of statistical methods for solving the financial issues. It has many applications like – the effect of the economic conditions on the financial markets, the asset price derivations, predicting the future financial variables and other financial decision-makings. In econometrics there is a lack of adequate test data for applying the particular methodology, this is termed as the small samples problem. There are further constraints in Econometrics with respect to data revisions and the measurement error. These problems are generally faced due to the subsequent...
10 pages (2510 words) Essay
financial econometrics
This observation supports the claim that the IG segment is more efficient than the HY segment....
2 pages (502 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!