solutions Introductory Econometrics for Finance Chris Brooks 2002 ch10.doc


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SolutionstotheReviewQuestionsattheEndofChapter101.(a)Thescopeofpossibleanswerstothispartofthequestionislimitedonlybytheimagination!Simulationsstudiesareusefulinanysituationwheretheconditionsusedneedtobefullyunderthecontroloftheresearcher(sothatanapplicationtorealdatawillnotdo),simulationsareparticularlyusefulforexaminingtheimpactofmodelmis-,whatistheimpactofignoredstructuralbreaksinaseriesuponGARCHmodelestimationandforecasting?urringoneafteranotherontestsforARCH?Infinance,anobviousapplicationofsimulations,aswellasthosediscussedinChapter10,istoproducing“scenarios”forstress-,whatwouldbetheimpactonbankportfoliovolatilityifthecorrelationsbetweenEuropeanstockindicesrosetoone?Whatwouldbetheimpactonthepricediscoveryprocessoronmarketvolatilityifthenumberandsizeofindexfundsincreasedsubstantially?(b)Puresimulationinvolvestheconstructionofanentirelynewdatasetmadefromartificiallyconstructeddata,,whenexaminingtheeffectofaparticularmis-specificationonthebehaviourofhypothesistests,itwouldbeinadvisabletousebootstrapping,becauseofcou

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