Exam

Prof. M. Max Croce

Introduction to Econometrics for Finance

(cod. 30285; 30188)
PRACTICE #2
Professor M M Croce

Name (in capital letters): ___________________________________ Class: 31 / 32

Please read the following instructions carefully.

1. The final exam will be managed according to Bocconi’s rule. In the past, we used
Respondus.
2. Your on-line exam will feature only MCQs. In this practice exam you will see a
question in essay format. This is just for pedagogical reasons. In the final on-line
exam, all questions will have a MC format, including questions that may require
you some derivations.
 Exam
Prof. M. Max Croce

1. Financial Econometrics:
a. Uses special tools not derived from statistics
b. Uses statistic tools to address financial economics problems
c. Requires us know population parameters.
d. All of the above

2. The disturbance term that we add to our linear representation in our simple regression
framework can be interpreted as:
a. The result of omitted variables
b. Errors in measurement
c. Random outside influences
d. All of the above

3. Given the following correlogram for a variable y t :

a. This correlogram is consistent with that of an AR(1) process

b. If this is an AR(1), the estimated persistence is 0.9
c. The persistence of this process is statistically different from zero (critical value of 2)
d. All of the above

4. A bootstrap procedure
a. Works in the same spirit of Montecarlo simulations, but it uses real data
b. Helps you to characterize the distribution of estimators
c. May be time consuming
d. All of the above
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Prof. M. Max Croce

5. A Fama MacBeth procedure applied to a panel with 10 stocks for which you have 200
observations
a. Enables us to estimate the market price of risk but only for financial factors
b. Give us 200 estimates of the market prices of risk of each factor
c. Gives us 10 market prices of risk
d. None of the above

6. Assume that the process y t ∼ ARIMA(0,0,0)

a. y t Is not stationary in levels
b. y t − y t−1 is a white noise
c. y t is a random walk
d. None of the above

7. According to the following panel data:

a. You can estimate a random effect model

b. You should use a fixed effect model
c. A simple OLS estimation is appropriate
d. None of the above

8. A Between Estimator
a. Collapses your panel in to a cross section
b. Is what Fama MacBeth propose
c. Uses information contained in the time-series fluctuations
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Prof. M. Max Croce

d. All of the above

9. Consider an APT model based on two financial factors. Consider two assets. The first asset
features excess returns with exposure (betas) of 1 and 2 to the first and second factor,
respectively. The second asset features excess returns with exposure (betas) of 1 and 1 to the
first and second factor, respectively. The first asset pays on average an excess return of 9%. The
second asset pays on average an excess return of 0%. According to the model,
a. The MPR of factor 1 is 3%; the MPR of factor 2 is 3%
b. The MPR of factor 1 is -3%; the MPR of factor 2 is 3%
c. The MPR of factor 1 is 3%; the MPR of factor 2 is -3%
d. None of the above
10. A time fixed effect model
a. Is appropriate when we think that the average of our data changes over time, but not in
the cross section
b. Can be estimated with OLS using time-dummies
c. Assumes that all units in our panel are affected to the same extent by a common time-
specific shock
d. All of the above
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Prof. M. Max Croce

Essay Question
(In the true exam, it will presented in MCQ format)

Part 1. Consider a cash-flow that evolves as an AR (1) model with persistence ρ and zero mean. What is
theoretical population R-squared that you can obtain?

Part 2. Assume to have a sample of size T for the variable y. What is the theoretical Standard Error of
your OLS estimate of ρ ?

Part 3. Assume that the shocks that affect your variable y are heteroskedastic. What would you do to get

the correct inference?

 Exam
Prof. M. Max Croce