10.On March 24, 1989 the Exxon oil tanker Valdez struck a reef in Prince William Sound rupturing the tanker and causing an oil spill of 10.8 million gallons of oil.Use the event study method to test whether that event had an effect on the rate of return for Exxon in the subsequent 10 day period (March 27 to April 7, 1989).Estimate the model from January 5, 1988 to March 20, 1989.The file Exxon.xlsx is available at the course website.

a.Form the rates of return for Exxon () and the S&P500 () using the log-difference operator in Gretl.

b.What are the means for the two return series?

c.Estimate the CAPM for the period January 5, 1988 to March 20, 1989:

And report the estimates in the table below.

Coefficient Estimate Standard error

B0

B1

SSR

d.Test the null hypothesis:Ho:vs. the alternative hypothesisH_A:using a t-test and a 5% significance level.Report the critical t-value and the calculated t-value and explain whether you reject or do not reject H_o^.

e.Test the null hypothesis:Ho:vs. the alternative hypothesisH_A:using a t-test and a 5% significance level.Report the critical t-value and the calculated t-value and explain whether you reject or do not reject H_o.Why test against 1 rather than 0?

f.Given SSR (from table above) what is ?

g.Form the abnormal residuals for the period March 27, 1989 to April 7, 1989 and then calculate the sum of the abnormal residuals for that 10 day period.

h.Test the null hypothesisH_o:vs. the alternative hypothesis

H_A:using a 5% significance level.

Critical t-value=______

Calculated t-value=_________

i.Given the results in part h., did the Exxon Valdez oil spill affect Exxon's rate of return?