The S&P 500 Index is a valueweighted index of prices of 500 large-cap common stocks actively traded

Question:

The S&P 500 Index is a valueweighted index of prices of 500 large-cap common stocks actively traded in the United States. A research analyst at an investment firm is attempting to forecast the daily stock price of Genzyme Corporation, one of the world's leading biotech companies, using both the S&P 500 Index as well as Genzyme's past stock prices. The following table shows a portion of the daily adjusted closing prices of Genzyme (y) and the S&P 500 Index (x) from December 1, 2010, to December 22, 2010.

Date....................... y................... x

12/1/2010............ 71.14........... 1206.07

12/2/2010............. 70.97........... 1221.53

⋮...................... ⋮........................ ⋮

12/22/2010........... 71.52.......... 1258.84

Estimate three models: (a) yt = β0 + β1xt −1 + εt, (b) yt = β0 + β1yt −1 + εt , and (c) yt = β0 + β1xt −1 + β2 yt −1 + εt. Use the most suitable model to forecast the Genzyme daily stock price for December 23, 2010.

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...