Question
(a)Consider the dividends and profits time series are given to you. Since dividends depend on profits, consider the following simple model: Dividends t = 1
(a)Consider the dividends and profits time series are given to you. Since dividends depend on profits, consider the following simple model:
Dividendst = 1 + 2Profits + ut.
(i)Would this regression suffers from the spurious regression phenomenon? Justify. (2 marks)
(ii)You have normalised the regression when testing the data. The results are as follows:
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Principles of Finance
Authors: Scott Besley, Eugene F. Brigham
5th edition
1111527369, 978-1111527365
