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Produce the descriptive statistics on the stock index

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Reference no: EM131395726

1. You are given monthly simple returns on Russell 1000 Growth Index for the period July 1963 - June 2002. The data can be downloaded from here: https://www.dropbox.com/s/49mvv9fxe25u2v9/RUSSELL_1000_GR.txt?dl=0. The returns are continuously com- pounded; that is, they are of the form log(1 + Rt), where Rt is a simple return. Such continuously compounded returns are the log-difference of the stock price Pt, log(1 + Rt) = Δlog Pt:

Financial economists believe that stock prices are well described as a random walk with drift, Δlog Pt = B + ?t; where denotes the so-called drift parameter.

(a) Produce the descriptive statistics on the stock index that are given, present an OLS estimate of B

(b) Perform a test of the hypothesis that the drift is zero. Use a 5% level of signicance. State all elements of your test procedure carefully.

Reference no: EM131395726

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