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3. Consider the monthly returns of McDonald's stock from August 1966 to December 2014. The data are available from CRSP and in the file
3. Consider the monthly returns of McDonald's stock from August 1966 to December 2014. The data are available from CRSP and in the file m-mcd3dx6614.txt. Obtain the log return series of MCD stock. (a) Is the expected MCD log return zero? Why? Is there any serial correlation in the log returns? Why? Is there any ARCH effect in the log returns? Why? (b) Build a GARCH model with Gaussian innovations for the log return series. Per- form model checking and write down the fitted model. (c) Fit an IGARCH(1,1) model for the MCD log returns. Write down the fitted model. (d) Fit a GARCH model with skew-Student-t innovations to the log return series. Perform model checking and write down the fitted model. (e) Based on the fitted model, is the monthly log returns of MCD stock skewed? Why? (f) Fit a GARCM-M model to the monthly log returns. Write down the model? Is the risk premium statistically significant? Why? (g) Fit a TGARCH(1,1) model to the monthly log returns. Write down the fitted model. Is the leverage effect statistically significant? Why?
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