Question 1) Write out the system of four regressions involving the four countries bond yield. For purpose of exposition and simplicity of notation, use only one 1 lag and let ri denote the yield for country i = US, UK, WG and JP.

Question 2) Now define a fourth quarter dummy as Q4,t 1 if return is in the fourth quarter and 0 otherwise. Suppose you drop the first quarter dummy from regression (B1-2) and include the fourth quarter dummy instead such that D t t t t t R Q Q Q e , 4 4, 2 2, 3 3, . (B1-3) What will the estimated value of 4 2 3 , , , now be? [4]

Question 3) Can one run the following regression t i D t i i t R Q u 4 1 , , (B1-5) to analyse whether there are quarterly return differences between the loser and winner portfolio? Explain. [2]