Final Exam: December 8, 2015

Name____________________________ APS 425 Advanced Managerial Data Analysis Fall 2015 Professor G. William Schwert CS3-110L, 585-275-2470 Fax: 585-46...
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Name____________________________

APS 425 Advanced Managerial Data Analysis Fall 2015

Professor G. William Schwert CS3-110L, 585-275-2470 Fax: 585-461-5475 email: [email protected]

Final Exam: December 8, 2015 Instructions: Exams are individual assignments, so do not collaborate with anyone else on this exam. Write your name at the top of each odd numbered page, and then stop to read all of the questions before starting to answer any of them. You should use Eviews to help you answer these questions, but you need to write your answers in the space provided in this exam. Good luck!!! Commodity, Real Estate, and Stock Price Data and Macroeconomic Data (A425_FINAL15.WF1) This data file contains monthly observations on:

(a) Moody’s Aaa bond yield (b) Moody’s Baa bond yield (c) spot price of cattle (cents/pound, BEEF) (d) spot price of corn (Chicago Yellow Corn No. 2 Spot Price, $/bushel, CORN) (e) US consumer price index (CPINSA) (f) price of US housing (S&P Case-Shiller 20-City Home Price Index, CSHOUSE) (g) price of gold (London noon “fix,” GOLD) (h) one-month yield on US Treasury bills (INT) (i) index of industrial production (IP) (j) spot price of West Texas intermediate oil in dollars per barrel (OIL) (k) US producer price index (PPI)

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APS 425 -- Advanced Managerial Data Analysis Final Exam

Professor G. William Schwert Fall 2015

(l) spot price of silver ($/ounce, SILVER) (m) spot price of soybeans ($/bushel, SOYBEANS) (n) S&P 500 stock price index (SP500) (o) spot price of sugar (#11 sugar, cents/pound, SUGAR) (p) the spread between the 3-month LIBOR yield and the 3-month Treasury bill yield (TED) (q) unemployment rate (UNEMP) from January 1968 through October 2015 (to the extent that the data are available).

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[25 points]

Many money management firms use the value of precious metals, such as gold and silver, as indicators of the “health” of the economy. The plot below shows why these analysts view these indicators as useful: 100 60 30 10

4,000

6

2,000 1,200

3

600 1 200 120 60 20 1970

1975

1980

1985 SP500

1990

1995 GOLD

2000

2005

2010

2015

SILVER

For example, gold and silver rose in the early and mid-1970s as stock prices fell, and gold rose throughout the recent credit crisis of 2007-2009 as stock prices suffered. The regression below

APS 425 -- Advanced Managerial Data Analysis Final Exam

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Professor G. William Schwert Name________________________________________

shows that you can predict higher stock prices in the future when gold prices are high and the goldsilver price spread is high: Dependent Variable: LOG(SP500) Method: Least Squares Sample (adjusted): 1968M02 2015M10 Included observations: 573 after adjustments Variable

Coefficient

Std. Error

t-Statistic

Prob.

C LOG(GOLD(-1)) LOG(SILVER(-1))

-1.048250 1.518572 -0.959076

0.294023 0.077586 0.097870

-3.565197 19.57287 -9.799490

0.0004 0.0000 0.0000

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic)

0.570989 0.569484 0.719611 295.1691 -623.0056 379.3188 0.000000

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat

5.946255 1.096739 2.185011 2.207790 2.193897 0.013712

Analyze the data in this file and give your boss advice on whether to choose a money manager for your company’s 401K plan that uses gold prices to modify asset allocations (in particular with investment in gold and gold-related securities).

APS 425 -- Advanced Managerial Data Analysis Final Exam

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Professor G. William Schwert Fall 2015

APS 425 -- Advanced Managerial Data Analysis Final Exam

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Professor G. William Schwert Name________________________________________

2. [25 points] Since President Obama was first elected in 2008 the US government has put a high priority on developing “alternative energy” sources. As a result, many people have suspected that the price of oil has been more strongly related to the prices of corn and soybeans (and other agricultural products that can be used to create alternative fuels). On the other hand, corn and soybeans are often used as feed to raise cattle, so if the prices of corn or soybeans rise, so does the cost of producing beef. Is there any evidence that the relation among the prices of corn, soybeans, oil, and beef have changed since 2008?

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Professor G. William Schwert Fall 2015

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Professor G. William Schwert Name________________________________________

3. [25 points] The US housing market has been the focus of much economic analysis and political discussion over the last decade. Some have criticized the Federal Reserve Board for artificially keeping interest rates low in the late 1990s and early 2000s to make owner-occupied housing “affordable” for a broader portion of the US population than had been traditional home owners. Evaluate the evidence for or against this argument.

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Professor G. William Schwert Name________________________________________

4. [25 points] The TED spread, the difference between 3-month Treasury bill yields and the 3-month LIBOR rate (which is supposed to represent the cost of banks borrowing from banks), is often used as a measure of short-term credit risk in the economy. The spread between the yields of Aaa-rated corporate bonds and Baa-rated bonds is a measure of longer-term credit risk. Discuss the extent to which these interest rate spreads can help us understand the behavior of the real economy (such as the unemployment rate or the index of industrial production).

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Professor G. William Schwert Fall 2015