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Question 1 (15 pts) Assume the following functional form of stock price determination: Pt SEdt + aEt9t +*, (1) where dt is the stock dividend
Question 1 (15 pts) Assume the following functional form of stock price determination: Pt SEdt + aEt9t +*, (1) where dt is the stock dividend (in log), It is the growth rate of stock dividend, ext refers to the expectation at time t; d, a and y* are parameters. Question 1.(a) (5 pts) Why cannot we run a regression based on formula (1) using data from the stock market? Question 1.(b) (5 pts) How shall we collect data for Etdt and Etgt? Question 1.(c) (5 pts) If the method you propose in 1.(b) is infeasible, what measures can be taken to transform equation (1), so that we can run a regression using data from the stock market? Question 1 (15 pts) Assume the following functional form of stock price determination: Pt SEdt + aEt9t +*, (1) where dt is the stock dividend (in log), It is the growth rate of stock dividend, ext refers to the expectation at time t; d, a and y* are parameters. Question 1.(a) (5 pts) Why cannot we run a regression based on formula (1) using data from the stock market? Question 1.(b) (5 pts) How shall we collect data for Etdt and Etgt? Question 1.(c) (5 pts) If the method you propose in 1.(b) is infeasible, what measures can be taken to transform equation (1), so that we can run a regression using data from the stock market
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