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.

Question 4 (:1) Consider the dividends and prots time series are given to you. Since dividends depend on prots, consider the following simple model: (i) (i!) W = 5: + mm + as. Would this regression su'ets from the spurious regression phenomenon? Justify. (2 marks) You have normalised the regression when testing the data The results are as follows: \"BEBE-WE'- (iii) (iv) (V) (Vii) (viii) 0.6281 0.0526 11.9253 0.1022 Rsquared=0.6231 d=0.0712 Are Dividends and Prots time series cointegrated? Justify the reasons for this nding. (3 marks) If, after testing, you nd that they are cointegrated, would your answer in (i) change? Explain (2 marks) If Prots and Dividends are cointegrated. Dene coinbegration between these two variables. (3 marks) Instead of regressing dividends on prots, you regress prots on dividends. Justify if such a regression valid. (2 marks) Ifyou examine the Dividends and Prots series individually, interpret either Dickey-Fuller test or Augmented Dickey-Fuller ten you will use to examine stochastic or deterministic trends- (3 marks) If vector autoregressive (VAR) is used for the estimation, identify the requirement for the application of VAR and interpret the approach to accomplish stationarity if Prots and Dividends are nonstationary. (2 marks) To perform forecasting, lag selection would be critical Identify the lag selection criterion and justify for the selection