Arbitrage Pricing Theory

 

 

 

 

 

 

 

 

Stepwise Regression: Table 4 

Dependent Variable: ERAGL
Method: Stepwise Regression
Date: 02/03/17   Time: 17:44
Sample (adjusted): 1987M03 2012M12
Included observations: 310 after adjustments
Number of always included regressors: 1
Number of search regressors: 7
Selection method: Stepwise forwards
Stopping criterion: p-value forwards/backwards = 0.2/0.2
Variable	Coefficient	Std. Error	t-Statistic	Prob.*
C	-0.926355	0.715476	-1.294739	0.1964
ERSANDP	1.302188	0.157402	8.273010	0.0000
RTERM	5.401141	2.831587	1.907460	0.0574
DINFLATION	3.257099	2.132055	1.527681	0.1276
R-squared	0.191599	Mean dependent var		-0.626839
Adjusted R-squared	0.183673	S.D. dependent var		13.92396
S.E. of regression	12.58041	Akaike info criterion		7.914978
Sum squared resid	48429.59	Schwarz criterion		7.963191
Log likelihood	-1222.822	Hannan-Quinn criter.		7.934251
F-statistic	24.17498	Durbin-Watson stat		2.183996
Prob(F-statistic)	0.000000
	Selection Summary
Added ERSANDP
Added RTERM
Added DINFLATION
*Note: p-values and subsequent tests do not account for stepwise
selection.

 

 

 

 

 

 

Examination for heteroskedasticity using the White test: Table 5

 

Heteroskedasticity Test: White
F-statistic	0.272928	Prob. F(7,302)		0.9641
Obs*R-squared	1.948778	Prob. Chi-Square(7)		0.9626
Scaled explained SS	12.05020	Prob. Chi-Square(7)		0.0989
Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 02/06/17   Time: 17:29
Sample: 1987M03 2012M12
Included observations: 310
Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	192.9651	43.81406	4.404183	0.0000
ERSANDP^2	-0.259216	0.720501	-0.359772	0.7193
DPROD^2	-12.49679	39.06426	-0.319903	0.7493
DCREDIT^2	-1.26E-08	4.97E-08	-0.253511	0.8000
DINFLATION^2	-67.65844	152.9501	-0.442356	0.6585
DMONEY^2	-0.014136	0.034199	-0.413345	0.6796
DSPREAD^2	46.67869	800.4559	0.058315	0.9535
RTERM^2	-242.1618	370.8336	-0.653020	0.5142
R-squared	0.006286	Mean dependent var		154.8460
Adjusted R-squared	-0.016747	S.D. dependent var		559.8700
S.E. of regression	564.5386	Akaike info criterion		15.53536
Sum squared resid	96248547	Schwarz criterion		15.63179
Log likelihood	-2399.981	Hannan-Quinn criter.		15.57391
F-statistic	0.272928	Durbin-Watson stat		2.021661
Prob(F-statistic)	0.964125

 

 

 

 

 

Tests before the crisis: Table 6

2003 -2006

Dependent Variable: ERAGL
Method: Least Squares
Date: 02/03/17   Time: 18:19
Sample: 2003M01 2006M12
Included observations: 48
Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	-0.588760	3.050014	-0.193035	0.8479
ERSANDP	1.181057	0.735526	1.605731	0.1162
DPROD	1.171447	3.899273	0.300427	0.7654
DCREDIT	-0.000217	0.000336	-0.646337	0.5218
DINFLATION	-1.650670	3.997740	-0.412901	0.6819
DMONEY	-0.025413	0.114154	-0.222621	0.8250
DSPREAD	50.67126	40.50672	1.250935	0.2182
RTERM	-1.510410	7.200336	-0.209769	0.8349
R-squared	0.143899	Mean dependent var		-1.338386
Adjusted R-squared	-0.005918	S.D. dependent var		11.13906
S.E. of regression	11.17197	Akaike info criterion		7.815705
Sum squared resid	4992.517	Schwarz criterion		8.127572
Log likelihood	-179.5769	Hannan-Quinn criter.		7.933560
F-statistic	0.960498	Durbin-Watson stat		2.163206
Prob(F-statistic)	0.472643

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tests after the crisis: Table 7

2009 -2012

 

Dependent Variable: ERAGL
Method: Least Squares
Date: 02/03/17   Time: 18:21
Sample: 2009M01 2012M12
Included observations: 48
Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	-1.143859	1.002364	-1.141162	0.2606
ERSANDP	1.039035	0.149106	6.968442	0.0000
DPROD	-0.563021	1.374681	-0.409565	0.6843
DCREDIT	1.05E-05	4.30E-05	0.243558	0.8088
DINFLATION	2.252484	2.012570	1.119208	0.2697
DMONEY	0.030484	0.026929	1.132018	0.2644
DSPREAD	-6.580861	6.258220	-1.051555	0.2993
RTERM	-1.418039	3.547284	-0.399753	0.6915
R-squared	0.579774	Mean dependent var		0.653542
Adjusted R-squared	0.506235	S.D. dependent var		7.086603
S.E. of regression	4.979644	Akaike info criterion		6.199606
Sum squared resid	991.8741	Schwarz criterion		6.511472
Log likelihood	-140.7905	Hannan-Quinn criter.		6.317461
F-statistic	7.883852	Durbin-Watson stat		1.986259
Prob(F-statistic)	0.000005

 

 

 

 

 

 

Group Meeting Minutes

Meeting One Minutes: 25/01/2017: 180 minutes

Point discussed:

Discussing the brief and what is required. Talking about individual strengths and who is more qualified to do each part.

Research of APT

Members present: All

Division of work load:

p13232959– research APT, initial format of report

P16211847 and p13232959– macro variables and editing respectively

P16211847 – e views

p14020881 – Limitations and benefits of each test

p14024789 – discussion

 

Meeting Two Minutes: 08/02/2017: 180 minutes

Point discussed:

Check progress of report. Part a and b completed.

Start research on E Views

Members present: All

Division of work load:

p13232959– link apt to macro factors and make comparisons to CAPM model

P16211847 – e views

p14020881 – Limitations and benefits of each test

p14024789 – discussion of results

 

Meeting Three Minutes: 15/02/2017: 60 minutes

Point discussed:

Check progress of report. Part a and b and c completed.

Look into results obtained and link to APT

Members present: All

Division of work load:

p13232959 – Executive summary

P16211847 – e views

p14020881 – Limitations and benefits of each test

p14024789 – discussion of results

 

Meeting Four Minutes: 22/02/2017: 120 minutes

Point discussed:

Report concluded, check through and edit.

Members present: All

Division of work load:

p13232959– edit and format report to be concise with brief and make appendix

P16211847 – e views, regression analysis alteration

p14020881– Limitations and benefits of each test

p14024789 – discussion of results and interpretation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

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Brooks, C. (2008). Introductory econometrics for finance. 1st ed. Cambridge [England]: Cambridge University Press.

Factors Affecting Stock Prices in the UAE Financial Markets, Journal of Transnational Management, 16:1–18.

Harter, H.L. (1983) "Least Squares," Encyclopedia of Statistical Sciences, Kotz, S. and Johnson, N.L., eds., John Wiley & Sons, New York, pp. 593-598.

Hilmer, C. and Hilmer, M. (n.d.). Practical econometrics. 1st ed. pp.147-181, 255-282.

Hussein A. Hassan Al-Tamimi, Ali Abdulla Alwan, and A. A. Abdel Rahman (2011).

Molodovsky, Nicholas (1995). A theory of price-earnings ratios. Financial Analysts Journal, 51(1), 29–43.

Salkind, N. and Rasmussen, K. (2007). Encyclopedia of measurement and statistics. 1st ed. Thousand Oaks, Calif.: SAGE Publications.

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Statistics How To. (2017). Durbin Watson Test & Test Statistic. [online] Available at: http://www.statisticshowto.com/durbin-watson-test-coefficient/ [Accessed 9 Feb. 2017].

Statistics Solutions. (2017). Multicollinearity - Statistics Solutions. [online] Available at: http://www.statisticssolutions.com/multicollinearity/ [Accessed 7 Feb. 2017].

Wooldridge, J. (2011). Introductory econometrics. 5th ed. [Place of publication not identified]: South-Western.

Zhao, Xing-Qiu (1999). Stock prices, inflation and output: Evidence from China. Applied Economics Letters, 6(8), 509–511.