In an a tte m p t to "tim e the market," a financial analyst studies the quarterly returns of a stock. He uses the model y = β 0 +

β1 d1 + β 2d2 + β 3d3 + ε where y is the quarterly return of a stock, d1 is a dummy variable that equals 1 if quarter 1 an d 0 otherwise, d2 is a dummy variable that equals 1 if quarter 2 and 0 otherwise, and d3 is a dummy variable that equals 1 if quarter 3 and 0 otherwise. The follow ing table is a portion of the regression results.

Coefficients Standard Error t Stat p-value Intercept 10.62 5.81 1.83 0.08 d1 – 7.26 8.21 – 0.88 0.38 d2 – 1.87 8.21 – 0.23 0.82 d3 – 9.31 8.21 – 1.13 0.27

a. Given that there are four quarters in a year, why doesn't the analyst include a fourth dummy variable in his model?

b. At the 5% significance level, are the dummy variables individually significant? Explain. Is the analyst able to obtain higher returns depending on the quarter?