For this question you have to use R. In your answers provide the commands that you used. For this question you will use the monthly data found in the “Individual Assignment_Final Data.xlsx” excel file, located in Moodle

statistics

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7. For this question you have to use R. In your answers provide the commands that you used. For this question you will use the monthly data found in the “Individual Assignment_Final Data.xlsx” excel file, located in Moodle. The variables are as follows:

 Date: year and the month of the observation.

 MSFT: Microsoft Corporation stock price.

 GSPC: S&P 500 index price.

a. Construct the t-plots of MSFT and GSPC. Are MSFT and GSPC stationary series? Show the t-plots and explain. 8 points

b. Construct the (natural) logarithm of MSFT and GSPC and the return of the two indices (the return is equal to the different of the natural logarithm of a variable and the first lag of the natural logarithm of a variable: ?? = ln(?? ) − ln(??−1) . Construct a t-plot of MSFT and GSPC. Are MSFT and GSPC a stationary series? Show the t-plot and explain. Construct the t-plots of MSFT and GSPC. Are MSFT and GSPC stationary series? Show the t-plots and explain. 8 points

c. Construct first four lags of the returns of MSFT and estimate an ??(?) model, where ? ≤ 4. What is the estimation you suggest? Why? 12 points

d. Construct first four lags of the returns of GSPC. Based on your decision from the previous section estimate an ???(?, ?) model, where ?, ? ≤ 4. What is the estimation you suggest? Why?