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Ac 505: Financial Econometircs Question Paper

Ac 505: Financial Econometircs

Course:Master Of Business Administration

Institution: Kenyatta University question papers

Exam Year:2011

KENYATTA UNIVERSITY

UNIVERSITY EXAMINATIONS 2010/2011

FIRST SEMESTER EXAMINATION FOR THE DEGREE OF
MASTER OF BUSINESS
BAC 505: FINANCIAL ECONOMETIRCS

DATE: FRIDAY 1ST APRIL 2011

TIME: 5.30 P.M. – 8.30 p.m
INSTRUCTIONS:
Answer ALL the Questions
Q1)
a)
Discuss the advantages of vector autoregressive models over univariate

time series and simultaneous equation models.

[8 marks]
b)
Given the following two equations
Y1t = B10 + B11Y1t-1 + B12 Y1t-2 + a11 Y2t-1 +a12Y2t-2+U1t
Y2t =B20 +B21Y2t-1+B22Y2t-2+a21Y1t-1+a22Y1t-2+U2t
Explain the tests to be conducted to test if lags of Y1t affect Y2t and if lags
of Y2t affect Y1t clearly stating your null and alternative hypothesis.

[5 marks]
c)
F-tests are limited in their use in VAR models. Explain this statement and
give an alternative to F-test.

[5 marks]

Q2)
a)
An operations manager is interested in predicting the costs based on the
amount of raw materials used in a clothing company. If the slope is
significantly greater than 5, there is something wrong with the production
process and the machines should be adjusted. At a 5% significance level,
should the machine be adjusted? Assume the standard error of the slope
is 0.95.

Page 1 of 2
Costs (in Kshs.000s
Raw materials (000kg)
10
2.5
7
2
5
1.6
6
1.7
7
1.9
6
1.8

(Clearly state your hypothesis)

[12 marks]
b)
Clearly explain the properties of the Ordinary squares
estimators.

[6 marks]
Q3)
a)
A distributed lag model is given by:

Yt =ao + ßoXt+ß1Xt-1+ß2Xt-2+ß3Xt-3+Ut
i)
Discuss three problems that would be encountered if the model

was estimated using ordinary least squares methods. [6 marks]
ii)
Given that ao = 12, ßo = 10 and ? ? 4
.
0 determine the koyck model
for the above equation

[4 marks]
b)
proof a moving average time series model of order q (M.A.,q) is always
stationery (Use only the first and second moments).
[7 marks]
Q4)
a)
Discuss five causes of autocorrelation in a regression model

Finance.

[5 marks]
b)
In order to test for autocorrelation in a regression model, an
econometrician calculated a value for the Durbin-Watson statistic of 0.95.
The regression has 60 quarterly observations and three explanatory
variables (plus a constant term). Perform the test. What is your
conclusion?

[5 marks]
c)
if the model in (b) above was estimated using OLS, what would be the
consequences.

[7 marks]

Page 2 of 2

Ac 505: Financial Econometircs Question Paper

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