Question 7 – by using eviews.
You have collected data on monthly profits of a group of traders over time and you wish to model the evolution of trading profits and its dependence on traders’ characteristics, including gender, education, years of experience, volume of trades and past trades performances.
Write a detailed description on how you would set up such a regression model and which steps you would conduct to obtain the best possible model including all the diagnostic tests you would run to make sure that the model is robust.
Be very careful in explaining how you would identify the impact of dummy explanatory variables on the dependent variable of interest.
Suggest how the regression model could be improved by the use of non -linearities including different functional forms or GARCH effects. You may also list new explanatory variables to add to the model providing a justification for your choice. I have known the applicant for the past three academic years.
(40 marks)
Also include all the following in the answer:
-How you would input it into eviews.
– What are the independent and dependent variables.
– Significance level
– goodness of fit
– standard error
– Diagnostic tests ( using GMA and Breusch godfrey)
– Dummy variables
– GARCH Model
– extra explanatory variables.
