Question A.

How do individual companies respond to economic forces throughout the globe? One way to explore this is to see how well rates of return for stock of individual companies can be explained by stock market indexes thar reflect particular parts of the world. The table below shows monthly rates of return for two companies, Microsoft (headquartered in the United States) and China Telecom (in China), along with three indexes: the Hang Seng (Hong Kong), the FTSE 100 (London), and the S&P 500 (New York).

1. Which index most explains changes in Microsoft's stock price? a. Run three separate regressions (one for each of the indexes) to assess the percentage changes in Microsoft stock explained by each of the three indexes. Report the adjusted r-square and p-value of the coefficient for each index. Which indexes, if any, are significant?

b. Now run a single multivariate regression model with all three indexes included. Which indexes, if any, are now considered significant? Report the p-value of the coefficient for each index and the overall adjusted r-square. Is this consistent with where Microsoft is headquartered.

c. What can explain the difference in your findings between indexes that were considered significant initially (part a) but no longer are considered significant (part b). Is there anything you find puzzling/contradicting in your results? You may use the interpretation that when an explanatory variable is significant in a multiple regression, it says that this variable brings additional information about the dependent variable over and above that information brought by the other explanatory variables.

2. Repeat the above (a, b, and c) for China Telecom. Which index most explains the changes in China Telecom's stock price. Is this consistent with where China Telecom is headquartered? Please explain any contradictions you see between part a and b for China Telecom.

Date	Microsoft	ChinaTelecom	Hang_Seng	FTSE	SP500
4/1/2010	5.39%	5.92%	4.32%	2.56%	3.61%
3/1/2010	2.16%	11.32%	3.06%	6.07%	5.88%
2/1/2010	2.21%	7.26%	2.42%	3.20%	2.85%
1/4/2010	-7.55%	-0.94%	-8.00%	-4.15%	-3.70%
12/1/2009	3.66%	-6.82%	0.23%	4.28%	1.78%
11/2/2009	6.51%	1.07%	0.32%	2.90%	5.74%
10/1/2009	7.81%	-7.02%	3.81%	-1.74%	-1.98%
9/1/2009	4.34%	-8.39%	6.24%	4.58%	3.57%
8/3/2009	5.39%	-0.69%	-4.13%	6.52%	3.36%
7/2/2009	-1.02%	4.48%	11.94%	8.45%	7.41%
6/1/2009	13.74%	4.56%	1.14%	-3.82%	0.02%
5/1/2009	3.78%	-3.61%	17.07%	4.10%	5.31%
4/1/2009	10.28%	22.14%	14.33%	8.09%	9.39%
3/2/2009	13.79%	23.76%	5.97%	2.51%	8.54%
2/2/2009	-4.93%	-7.35%	-3.51%	-7.70%	-10.99%
1/2/2009	-12.06%	-5.04%	-7.71%	-6.42%	-8.57%
12/1/2008	-3.81%	0.00%	3.59%	3.41%	0.78%
11/3/2008	-8.85%	7.94%	-0.58%	-2.04%	-7.48%
10/2/2008	-16.33%	-13.81%	-22.47%	-10.71%	-16.94%
9/1/2008	-2.20%	-19.85%	-15.27%	-13.02%	-9.08%
8/1/2008	6.51%	-6.45%	-6.46%	4.15%	1.22%
7/2/2008	-6.50%	0.28%	2.85%	-3.80%	-0.99%
6/2/2008	-2.86%	-23.57%	-9.91%	-7.06%	-8.60%
5/1/2008	-0.33%	5.28%	-4.75%	-0.56%	1.07%
4/1/2008	0.48%	9.26%	12.72%	6.76%	4.75%
3/3/2008	4.37%	-14.41%	-6.09%	-3.10%	-0.60%
2/1/2008	-16.25%	2.00%	3.73%	0.08%	-3.48%
1/2/2008	-8.44%	-7.80%	-15.67%	-8.94%	-6.12%
12/3/2007	5.95%	-3.34%	-2.90%	0.38%	-0.86%
11/1/2007	-8.39%	-8.10%	-8.64%	-4.30%	-4.40%
10/1/2007	24.93%	14.89%	15.51%	3.94%	1.48%
9/3/2007	2.56%	31.48%	13.17%	2.59%	3.58%
8/1/2007	-0.58%	0.83%	3.45%	-0.89%	1.29%
7/3/2007	-1.61%	-2.46%	6.49%	-3.75%	-3.20%
6/1/2007	-3.98%	9.97%	5.52%	-0.20%	-1.78%
5/1/2007	2.86%	13.89%	1.55%	2.67%	3.25%
4/2/2007	7.40%	-1.35%	2.62%	2.24%	4.33%
3/1/2007	-1.05%	6.83%	0.76%	2.21%	1.00%
2/1/2007	-8.39%	-5.38%	-2.26%	-0.51%	-2.18%
1/2/2007	3.34%	-10.94%	0.71%	-0.28%	1.41%