The following information relates to the Case 2 questions below. Adele Chiesa is a money manager for the Bianco Fund. She is interested in recent findings showing that certain business condition variables predict excess US stock market returns (one-month market return minus one-month T-bill return). She is also familiar with evidence showing how US stock market returns differ by the political party affiliation of the US President. Chiesa estimates a multiple regression model to predict monthly excess stock market returns accounting for business conditions and the political party affiliation of the US President:

Default spread is equal to the yield on Baa bonds minus the yield on Aaa bonds. Term spread is equal to the yield on a 10-year constant-maturity US Treasury index minus the yield on a 1-year constant-maturity US Treasury index. Pres party dummy is equal to 1 if the US President is a member of the Democratic Party and 0 if a member of the Republican Party.

Chiesa collects 432 months of data (all data are in percent form, i.e., 0.01 = 1 percent). The regression is estimated with 431 observations because the independent variables are lagged one month. The regression output is in Exhibit 1. Exhibits 2 through 5 contain critical values for selected test statistics.

After responding to her interns questions, Chiesa concludes with the following statement: Predictions from Exhibit 1 are subject to parameter estimate uncertainty, but not regression model uncertainty.

Regarding the interns Question 1, is the regression model as a whole significant at the 0.05 level?

Question 25 options:

1)	No, because the calculated F-statistic is less than the critical value for F.

2)	Yes, because the calculated F-statistic is greater than the critical value for F.

3)	Yes, because the calculated chi-sqaure statistic is greater than the critical value for chi-sqaure.

Question 26 (1 point)

Which of the following is Chiesas best response to Question 2 regarding serial correlation in the error term? At a 0.05 level of significance, the test for serial correlation indicates that there is:

Question 26 options:

1)	no serial correlation in the error term.

2)	positive serial correlation in the error term.

3)	negative serial correlation in the error term.

Question 27 (1 point)

Regarding Question 3, the Pres party dummy variable in the model indicates that the mean monthly value for the excess stock market return is:

Question 27 options:

1)	1.43 percent larger during Democratic presidencies than Republican presidencies.

2)	3.17 percent larger during Democratic presidencies than Republican presidencies.

3)	3.17 percent larger during Republican presidencies than Democratic presidencies.

Question 28 (1 point)

In response to Question 4, the 95 percent confidence interval for the regression coefficient for the default spread is closest to:

Question 28 options:

1)	0.13 to 5.95.

2)	1.72 to 4.36.

3)	1.93 to 4.15.

Question 29 (1 point)

With respect to the default spread, the estimated model indicates that when business conditions are:

Question 29 options:

1)	strong, expected excess returns will be higher.

2)	weak, expected excess returns will be lower.

3)	weak, expected excess returns will be higher.

Question 30 (1 point)

Is Chiesas concluding statement correct regarding parameter estimate uncertainty and regression model uncertainty?

Question 30 options:

1)

Yes.

2)	No, predictions are not subject to parameter estimate uncertainty.

3)	No, predictions are subject to regression model uncertainty and parameter estimate uncertainty.

Exhibit 1. Multiple Regression Output (the Dependent Variable Is the One-Mouth Market Return in Excess of the One-Month T-Bill Return) Coefficient --Statistic p-value Intercept -4.60 -4.36 > P 0.10 1.282 0.05 1.645 0.025 1.960 0.012.336 0.003 2.576 Exhit 4 Valises et Pribadi in Right Tail 0.979.95 DS 2009 Bhavas Table of de Feierboties (Chical Valles de Recht Hand Trust Ames kanal to 608) Nonstratat en wederom de an 101 1200 286 2954 43.86 3.0268 239 2.17 Exhibit 1. Multiple Regression Output (the Dependent Variable Is the One-Mouth Market Return in Excess of the One-Month T-Bill Return) Coefficient --Statistic p-value Intercept -4.60 -4.36 > P 0.10 1.282 0.05 1.645 0.025 1.960 0.012.336 0.003 2.576 Exhit 4 Valises et Pribadi in Right Tail 0.979.95 DS 2009 Bhavas Table of de Feierboties (Chical Valles de Recht Hand Trust Ames kanal to 608) Nonstratat en wederom de an 101 1200 286 2954 43.86 3.0268 239 2.17