CHƯƠNG 1 D.

Continuous number

1. If a researcher uses daily data to examine a
particular problem and creates a variable that
assigns a numerical value of 1 to Monday
observations, what term would best describe this
type of number?
6. In a cross-country study, a researcher codes the
US as “1”, Europe as “2” and the rest of the world as
“3”. This is best described as a/an:
A. Cardinal number

A. Continuous B. Ordinal number

B. Cardinal C. Nominal number

C. Ordinal D. Continuous number

D. Nominal 7. The yield to maturity on a bond is best described

as a/an:
2. The price of a house is best described as what
type of number? A. Cardinal numbe r

A. Discrete B. Ordinal number

B. Cardinal C. Nominal number

C. Ordinal D. Discrete number

D. Nominal 8. A share price is quoted in units of pennies.

Which term best describes this sort of data?
3. Which of the following is NOT a feature of
continuously compounded returns (i.e. log- A. Discrete
returns)?
B. Continuous
A. They can be interpreted as continuously
compounded changes in the prices C. Ordinal

B. They can be added over time to give returns for D. Nominal

longer time periods
9. Which of the following statements is FALSE
C. They can be added across a portfolio of assets to concerning log-price relatives (log returns)?
give portfolio returns
A. They can be interpreted as continuously
D. They are usually fat-tailed compounded returns

4. Suppose that observations are available on the B. They can be validly averaged over time
monthly bond prices of 100 companies for 5 years.
C. They can be validly averaged cross-sectionally
What type of data are these?
D. They can be expressed in proportion or percentage
A. Cross-sectional
terms
B. Time-series
10. Which of the following statements is TRUE
C. Panel concerning simple returns?

D. Qualitative A. They can be interpreted as continuously

compounded returns
5. The score associated with a credit rating is best
described as a/an: B. They can be validly averaged over time

A. Cardinal number C. They can be validly averaged cross-sectionally

B. Ordinal number D. They cannot be expressed in percentage terms

C. Nominal number 11. Suppose that the simple returns on a stock for
each of four years are 10%, -6%, 13% and -8%.
The appropriately calculated aggregate return
over the whole four-year period to the nearest 1% 4. The point at which a function crosses the x-axis
is: is called:

A. 9% A. The intercept

B. 2% B. The slope

C. 7% C. A root

D. 1.8% D. The origin

Suppose that the log returns on a stock for each of 5. If the relationship between two variables is y =
four years are 10%, -6%, 13% and -8%. The 3x3 + 2x2 + x – 6, what is the functional form that
appropriately calculated aggregate return over the links them?
whole four-year period to the nearest 1% is:
A. Linear
A. 9%
B. Non-linear
B. 2%
C. Quadratic
C. 7%
D, Exponential
D. 1.8%
6. If the relationship between two variables is y = –
CHƯƠNG 2 4x + 2, what is the functional form that links them?

1. Suppose that we estimate a relationship A. Linear

between volatility, y in percent, and the number of
stocks in a portfolio, x given by y = 86.4 – 1.2x. If a B. Non-linear
portfolio contains twenty five stocks, what would
be the volatility to the nearest 1%? C. Quadratic

A. 86% D. Cubic

B. 1% 7. If we plot the relationship y = a + bx on a graph,

what will be the interpretation of a?
C. 56%
A. The point where the line crosses the x-axis
D. 25%
B. The point where the line crosses the y-axis
2. Given the scenario in question 1, How many
stocks would be required to achieve a volatility of C. The slope of the line
10%?
D. The origin
A. 86
8. If we know that relationship y = a + bx yields a
B. 64 horizontal line, which restriction must hold?

C. 74 A. a = 0

D. 1 B. b = 0

3. A straight line has a gradient of 1.4 and crosses C. a = 0 and b = 0

the x-axis at -0.8. What is the value of y when x =
D. x = 0
3.2?
9. If we know that relationship y = a + bx yields a
A. 1.4
line at 45 degrees to the x-axis, which restriction
B. 3.68 must hold?

C. 1.12 A. a = 1

D. 5.6 B. a = b
C. b = 1 15. Another way of writing log(x + y) is:

D. b = 0 A. log(x) + log(y)

10. Which type of function y plotted against x B. log (x) x log(y)

always has a gradient that is increasing in x?
C. log(xy)
A. A quadratic function
D. None of the above apply.
B. A linear function
16. Log(0) is:
C. An exponential function
A. 1
D. A logarithmic function
B. 0
11. A cubic function, y = f(x) will have how many
UNIQUE roots? C. 2.71828…

A. 3 D. Undefined

B. At most three 17. Writing out all the terms in the expression
would lead to:
C. 0
(i) 3x3
D. At least one
(ii) x3
12. Which shape will be the function y = –3 + 2x –
x2? (iii) 27x3

(i) Always upward sloping (iv) 27x

(ii) Always downward sloping A. (i)

(iii) U-shaped B. (ii)

(iv) ∩-shaped C. (iii)

A. (i) D. (iv)

B. (ii) 18. The derivative of a function y with respect to x

is:
C. (iii)
(i) The gradient of the curve
D. (iv)
(ii) The rate of change of y with respect to x
13. What are the roots of the equation y = x2 – 9x?
(iii) The area under the curve
A. 0 and 9
(iv) Zero at a turning point
B. 3 (repeated)
A. (i) only
C. 0, 3 and 9
B. (i) and (ii) only
D. Both complex
C. (i), (ii) and (iv) only
14. A plot of the function y = log(x) will:
D. All of (i) to (iv)
A. Cross the y-axis at one
19. The derivative of y = 1/x is:
B. Cross the x-axis at one
A. 1/x²
C. Have a gradient that increases with x
B. log(x)
D. Have a constant gradient
C. 1/x 1 0 0
(iii) 0 0 0
D. x 0 0 1

20. The derivative of 5log(x) is: 0 1

(iv)
1 0
A. 5/x
A. (i)
B. 5
B. ii)
C. 5log(x)
C. (iii)
D. 5/log(x)
D. (iv)
21. The second derivative of 8x2 is:
26. If A is of dimension 1 x 4 and B is of dimension
A. 16x² 4 x 1, what is the most accurate term to describe
the matrix A?
B. 16x
A. A scalar
C. 16
B. A column vector
D. 0
C. A row vector
22. The second derivative of -4x is:
D. A matrix
A. -4x
27. If A is of dimension 1 x 4 and B is of dimension
B. -4x² 4 x 1, what is the most accurate term to describe
the result of the matrix multiplication BA?
C. -4
A. A scalar
D. 0
B. A column vector
23. The partial derivative of 6x2 + 2x + 3xy + 4y –
2y2 with respect to y is: C. A row vector

A. 0 D. A matrix

B. 12x + 6 – 4y 28. If A is of dimension 1 x 4 and B is of dimension

2 x 4, what will be the dimensions of the matrix
C. 6x² + 2x + 3 + y – 4y multiplication AB?

D. 3x + 4-4y A. 1 x 4

24. What are the dimensions of the B. 4 x 4

−𝟐 𝟔 𝟏
matrix
𝟑 𝟎 −𝟒 C. 2 x 4

A. 2 x 2 D. This matrix multiplication is undefined

B. 3 x 2 𝟏 𝟑
29. The inverse of the matrix is:
𝟐 𝟓
C. 2 x 3
1 3
(i)
D. Square 2 5

25. Which of the following is an identity matrix? 5 −3

(ii)
−2 1
(i) (1) −5 3
(iii)
1 1 2 −1
(ii)
1 1 (iv) Undefined
A. (i) B. (i) and (iii) only

B. (ii) C. (i), (ii), and (iii) only

C. (iii) D. (i), (ii), (iii), and (iv)

D. (iv) 2. Which of the following are alternative names for

the independent variable (usually denoted by x) in
−𝟐 −𝟑 linear regression analysis?
30. The matrix is:
𝟒 𝟔
(i) The regressor
(i) Square
(ii) The regressand
(ii) Singular
(iii) The causal variable
(iii) Non-invertible
(iv) The effect variable
(iv) Of full rank
A. (ii) and (iv) only
A. (i) only
B. (i) and (iii) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
C. (i), (ii) and (iii) only
D. (i), (ii), (iii), and (iv)
D. (i) to (iv) are all correct
3. Which of the following statements is TRUE
31. The determinant of a singular matrix will be:
concerning the standard regression model?
A. 0
A. y has a probability distribution
B. 1
B. x has a probability distribution
C. A positive integer
C. The disturbance term is assumed to be correlated
D. Equal to the dimension of the square matrix with x

32. What are the eigenvalues of the matrix D. For an adequate model, the residual (u-hat) will be
−𝟑 −𝟔 zero for all sample data points.
?
𝟐 𝟒
4. Which of the following statements is TRUE
A. 0 and 0 concerning OLS estimation?

B. 1 and 2 A. OLS minimises the sum of the vertical distances

from the points to the line
C. 0 and 1
B. OLS minimises the sum of the squares of the vertical
D. 2 and 2 distances from the points to the line

CHƯƠNG 3 C. OLS minimises the sum of the horizontal distances

from the points to the line
1. Which of the following are alternative names for
the dependent variable (usually denoted by y) in D. OLS minimises the sum of the squares of the
linear regression analysis? horizontal distances from the points to the line

(i) The regressand 5. The residual from a standard regression model

is defined as
(ii) The regressor
A. The difference between the actual value, y, and the
(iii) The explained variable mean, y-bar
(iv) The explanatory variable B. The difference between the fitted value, y-hat, and
the mean, y-bar
A. (ii) and (iv) only
C. The difference between the actual value, y, and the
fitted value, y-hat
D. The square of the difference between the fitted
value, y-hat, and the mean, y-bar.
6. Which one of the following statements best
describes the algebraic representation of the fitted
regression line?
(i)
(ii)
(iii)
(iv)
A. (i)
B. (ii)
C. (iii)
D. (iv)
7. Which of the following statements concerning
the regression population and sample is FALSE?
A. The population is the total collection of all items of
interest
B. The population can be infinite
C. In theory, the sample could be larger than the
population
D.. A random sample is one where each individual item
from the population is equally likely to be drawn.
8. Which of the following statements is true
concerning the population regression function
(PRF) and sample regression function (SRF)?
A. The PRF is the estimated model
B. The PRF is used to infer likely values of the SRF
C. Whether the model is good can be determined by
comparing the SRF and the PRF
D. The PRF is a description of the process thought to
be generating the data.
9. Which of the following models can be estimated
using OLS, following suitable transformations if
necessary? (Note that “e” denotes the exponential).
(i)
(ii)
(iii)
(iv)
A. (i) only
B. (i) and (iii) only
C. (i), (iii) and (iv) only
D. (i), (ii), (iii), and (iv)
10. Which of the following is an equivalent
expression for saying that the explanatory
variable is “non-stochastic”?
A. The explanatory variable is partly random
B. The explanatory variable is fixed in repeated
samples
C. The explanatory variable is correlated with the
errors
D. The explanatory variable always has a value of one
11. If an estimator is said to be consistent, it is
implied that
A. On average, the estimated coefficient values will
equal the true values
B. The OLS estimator is unbiased and no other
unbiased estimator has a smaller variance
C. The estimates will converge upon the true values as
the sample size increases
D. The coefficient estimates will be as close to their
true values as possible for small and large samples.
12. If an estimator is said to have minimum
variance, which of the following statements is NOT
implied?
A. The probability that the estimate is a long way away
from its true value is minimised
B. The estimator is efficient
C. Such an estimator would be termed “best”
D. Such an estimator will always be unbiased.
13. Consider the OLS estimator for the standard D. (i), (ii), (iii), and (iv)
error of the slope coefficient. Which of the
following statement(s) is (are) true? 16. The following regression results are gained for

(i) The standard error will be positively related to the model , estimated using 100
the residual variance observations, and where standard errors are

(ii) The standard error will be negatively related presented in parentheses:

to the dispersion of the observations on the
explanatory variable about their mean value Consider a test of the null hypothesis that the true
value of the slope coefficient is –1. Using a 5% one-
(iii) The standard error will be negatively related sided test, where the alternative is of the form H1:
to the sample size β < -1, what is the appropriate conclusion?
(iv) The standard error gives a measure of the (i) H0 is rejected
precision of the coefficient estimate.
(ii) H0 is not rejected
A. (ii) and (iv) only
(iii) H1 is rejected
B. (i) and (iii) only
(iv) There is insufficient information given in the
C. (i), (ii), and (iii) only question to reach a conclusion
D. (i), (ii), (iii), and (iv) A. (i)
14. Which of the following statements is B. (ii)
INCORRECT concerning the classical hypothesis
testing framework? C. (iii)
A. If the null hypothesis is rejected, the alternative is D. (iv)
accepted
7. Consider an identical situation to that of
B. The null hypothesis is the statement being tested question 16, except that now a 2-sided alternative
while the alternative encompasses the remaining is used. What would now be the appropriate
outcomes of interest conclusion?
C. The test of significance and confidence interval (i) H0 is rejected
approaches will always give the same conclusions
(ii) H0 is not rejected
D. Hypothesis tests are used to make inferences about
the population parameters. (iii) H1 is rejected

15. Suppose that a hypothesis test is conducted (iv) There is insufficient information given in the
using a 5% significance level. Which of the question to reach a conclusion.
following statements are correct?
A. (i)
(i) The significance level is equal to the size of the
test B. (ii)

(ii) The significance level is equal to the power of C. (iii)

the test
(iii) 2.5% of the total distribution will be in each
tail rejection region for a 2-sided test
(iv) 5% of the total distribution will be in each tail
rejection region for a 2-sided test.
D. (iv)
18. Which one of the following would be the most
appropriate as a 95% (two-sided) confidence
interval for the intercept term of the model given
in question 21?

A. (ii) and (iv) only A. (-4.79,2.19)

B. (i) and (iii) only B. (-4.16,4.16)

C. (i), (ii), and (iii) only C. (-1.98,1.98)

D. (-5.46,2.86) What is the appropriate critical value for a 2-sided
5% size of test of H0: β3 = 1?
19. Which one of the following is the most
appropriate definition of a 99% confidence A. 1.64
interval?
B. 1.71
A. 99% of the time in repeated samples, the interval
would contain the true value of the parameter C. 2.06

B. 99% of the time in repeated samples, the interval D. 1.96

would contain the estimated value of the parameter
2. Under the matrix notation for the classical
C. 99% of the time in repeated samples, the null linear regression model, y = Xβ + u, what are the
hypothesis will be rejected dimensions of u?

D. 99% of the time in repeated samples, the null A. T x k

hypothesis will not be rejected when it was false
B. T x 1
20. Which one of the following statements best
describes a Type II error? C. k x 1

A. It is the probability of incorrectly rejecting the null D. 1 x 1

hypothesis
3. What are the dimensions of û'û
B. It is equivalent to the power of the test
A. T x k
C. It is equivalent to the size of the test
B. T x 1
D. It is the probability of failing to reject a null
C. k x 1
hypothesis that was wrong
D. 1 x 1
21. Suppose that a test statistic has associated with
it a p-value of 0.08. Which one of the following 4. Consider the following statistics calculated from
statements is true? the raw data:
(i) If the size of the test were exactly 8%, we would
be indifferent between rejecting and not rejecting
the null hypothesis

(ii) The null would be rejected if a 10% size of test

were used for the model
estimated using 30 monthly observations.
(iii) The null would not be rejected if a 1% size of
test were used What is the estimate for β3?
(iv) The null would be rejected if a 5% size of test A. 0.01
were used.
B. 0.2
A. (ii) and (iv) only
C. -0.09
B. (i) and (iii) only
D. 0.4
C. (i), (ii), and (iii) only
5. Consider the following statistics calculated from
D. (i), (ii), (iii), and (iv) the raw data:
CHƯƠNG 4

1. Suppose that the following regression is

estimated using 27 quarterly observations:
for the model
estimated using 30 monthly observations.
What is the estimate for the standard error for β2? 9. Consider the following regression equation
estimated using 1,000 daily observations.
A. 0.6

B. 0.013 (1)

C. 0.12 Which one of the following would be a possible

restricted regression for a test of the null
D. 0.022 hypothesis H0: β2 + β3 = 1?

6. Consider the following statistics calculated from (i) The restricted regression would be the one
the raw data: labelled as equation (1) above

(ii)

for the model (iii)

estimated using 30 monthly observations.
(iv)
What is the test statistic resulting from a test of the
null hypothesis that the true value of the intercept A. (i)
coefficient is zero?
B. (ii)
A. -1.10
C. (iii)
B. -0.09
D. (iv)
C. 0.3
10. Consider the following regression equation
D. 0.6 estimated using 1,000 daily observations.
7. Suppose that a test that the true value of the
intercept coefficient is zero results in non- (1)
rejection. What would be the appropriate
conclusion? Which of the following null hypotheses could be
tested using an F-test?
A. Drop the intercept and re-run the regression
(i) β2 = 1
B. Retain the intercept
(ii) β32 = 1
C. Re-compute the test statistic
(iii) β4 = -β2
D. The regression line is running exactly through the
origin. (iv) β3β4 = 0

8. Suppose that 100 separate firms were tested to A. (ii) and (iv) only
determine how many of them “beat the market”
using a Jensen-type regression, and it is found that B. (i) and (iii) only
3 fund managers significantly do so. Does this
C. (i), (ii) and (iii) only
suggest prima facie evidence for stock market
inefficiency? D. (i), (ii), (iii) and (iv)
A. Yes 11. Consider the following regression equation
estimated using 1,000 daily observations.
B. No

C. In order to answer this question, you would need to (1)

test every fund manager trading in that market
D. There is insufficient information given in the
question to draw a conclusion about market efficiency.
Suppose that the test in question 9 were
conducted, [Which one of the following would be a
possible restricted regression for a test of the null
hypothesis H0: β2 + β3 = 1?] what would be the
relevant critical value from the statistical tables
with which to compare the test statistic?
A. 254
B. 253
C. 3.00
D. 3.84
12. Consider the following regression equation
estimated using 1,000 daily observations.
(1)
Suppose that the test in question 9 were
conducted, [Which one of the following would be a
possible restricted regression for a test of the null
hypothesis H0: β2 + β3= 1?] and the two required
residual sums of squares are 30.2 and 28.1, what is
the F-test statistic?
A. 37.2
B. -37.2
C. 74.4
D. -74.4
13. Consider the following regression equation
estimated using 1,000 daily observations.
(1)
What would be the null hypothesis for the
standard regression F-test for equation (1) above?
(i) β2 = 0 and β3 = 0 and β4 = 0
(ii) β2 = 0 or β3 = 0 or β4 = 0
(iii) β1 = 0 and β2 = 0 and β3 = 0 and β4 = 0
(iv) β1 = 0 or β2 = 0 or β3 = 0 or β4 = 0
A, (i)
B. (ii)
C. (iii)
D. (iv)
14. Which one of the following is examined by
looking at a goodness of fit statistic?
A. How well the population regression function fits the
data
B. How well the sample regression function fits the
population regression function
C. How well the sample regression function fits the
data
D. How well the population regression function fits the
sample regression function
15. Suppose that the value of R2 for an estimated
regression model is exactly zero. Which of the
following are true?
(i) All coefficient estimates on the slopes will be
zero
(ii) The fitted line will be horizontal with respect
to all of the explanatory variables
(iii) The regression line has not explained any of
the variability of y about its mean value
(iv) The intercept coefficient estimate must be
zero.
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv).
16. Consider the following 2 regression models:
Model 1:
Model 2:
Which of the following statements are true?
(i) Model 2 must have an R2 at least as high as that
of model 1
(ii) Model 2 must have an adjusted R2 at least as
high as that of model 1
(iii) Models 1 and 2 would have identical values of
R2 if the estimated coefficient on α3 is zero
(iv) Models 1 and 2 would have identical values of
adjusted R2 if the estimated coefficient on α3 is
zero.
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
17. Suppose that, for the models in question 16,
the R2 is higher for model 2 but the adjusted R2 is
lower for model 2. Which one of the following is
the most plausible explanation?
i) The coefficient estimate on α3 is zero
(ii) The coefficient estimate α3 is non-zero but not
significant
(iii) The variable x3t is highly correlated with the
variable x2t
(iv) The researcher must have made a mistake
since the situation described in the question could
not happen.
A. (i)
B. (ii)
C. (iii)
D. (iv)
18. Suppose that the two models in question 16
have identical R2 values. Which one of the
following statements is true?
i) The two models will also have identical values of
adjusted R2
(ii) Model 2 must have a higher value of adjusted
R2
(iii) Model 2 must have a lower value of adjusted
R2
(iv) It is not possible to determine which model
will have the higher R2 without knowing the
sample size.
A. (i)
B. (ii)
C. (iii)
D. (iv)
19. Which of the following is not an advantage of
quantile regressions compared with standard OLS?
A. Quantile regressions are more robust to outliers
B.Quantile regressions do not require
homoscedasticity assumption
C. Quantile regressions can capture non-linear
relationships between variables
D. Quantile regressions can be used to capture tail
behaviour
20. What does a quantile regression measure?
A. The entire distribution of y given the distributions
of the explanatory variables
B. The fifth and ninety fifth percentiles of y only given
the explanatory variables
C. The median of y only given the explanatory
variables
D. The relationship between the mean of y and the
mean of the explanatory variables
21. The parameters of a quantile regression
function are estimated by:
A. Minimising the sum of squared residuals
B. Minimising the sum of the absolute values of the
residuals
C. Minimising the sum of the weighted absolute values
of the residuals
D. Minimising the weighted sum of squared residuals
CHƯƠNG 5
1. Which of the following assumptions are
required to show the consistency, unbiasedness
and efficiency of the OLS estimator?
(i) E(ut) = 0
(ii) Var(ut) = δ2
(iii) Cov(ut, ut-j) = 0 j
(iv) ut ~ N(0, δ2)
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv) only
2. Which of the following may be consequences of
one or more of the CLRM assumptions being
violated?
(i) The coefficient estimates are not optimal
the (ii) The standard error estimates are not optimal
(iii) The distributions assumed for the test
statistics are inappropriate
(iv) Conclusions regarding the strength of
relationships between the dependent and
independent variables may be invalid.
A. (ii) and (iv) only B. 118.50

B. (i) and (iii) only C. 11.07

C. (i), (ii), and (iii) only D. 9.24

D. (i), (ii), (iii), and (iv) 6. What would be then consequences for the OLS
estimator if heteroscedasticity is present in a
3. What is the meaning of the term regression model but ignored?
“heteroscedasticity”?
A. It will be biased
A. The variance of the errors is not constant
B. It will be inconsistent
B. The variance of the dependent variable is not
constant C. It will be inefficient

C. The errors are not linearly independent of one
another
D. The errors have non-zero mean
4. Consider the following regression model (2)
C. All of (a), (b) and (c) will be true
7. Which of the following are plausible approaches
to dealing with a model that exhibits
heteroscedasticity?
(i) Take logarithms of each of the variables

(ii) Use suitably modified standard errors

Suppose that a researcher is interested in
conducting White’s heteroscedasticity test using
the residuals from an estimation of (2). What
would be the most appropriate form for the
auxiliary regression?
(iii) Use a generalised least squares procedure
(iv) Add lagged values of the variables to the
regression equation.

A. (ii) and (iv) only

(i)
B. (i) and (iii) only
(ii)
C. (i), (ii), and (iii) only

D. (i), (ii), (iii), and (iv)

(iii)
8. Negative residual autocorrelation is indicated
(iv) by which one of the following?

A. A cyclical pattern in the residuals

A. (i) B. An alternating pattern in the residuals

B. (ii) C. A complete randomness in the residuals

C. (iii) D. Residuals that are all close to zero

D. (iv) 9. Which of the following could be used as a test for

autocorrelation up to third order?
5. Consider the following regression model (2)
A. The Durbin Watson test

B. White’s test
Suppose that model (2) is estimated using 100
quarterly observations, and that a test of the type C. The RESET test
described in question 4 is conducted. What would
be the appropriate 2 critical value with which to D. The Breusch-Godfrey test
compare the test statistic, assuming a 10% size of
test? 10. If a Durbin Watson statistic takes a value close
to zero, what will be the value of the first order
A. 2.71 autocorrelation coefficient?
A. Close to zero C. (i), (ii), and (iii) only

B. Close to plus one D. (i), (ii), (iii), and (iv)

C. Close to minus one 14. Which of the following are plausible

approaches to dealing with residual
D. Close to either minus one or plus one autocorrelation?
11. Suppose that the Durbin Watson test is applied (i) Take logarithms of each of the variables
to a regression containing two explanatory
variables plus a constant (e.g. equation 2 above) (ii) Add lagged values of the variables to the
with 50 data points. The test statistic takes a value regression equation
of 1.53. What is the appropriate conclusion?

A. Residuals appear to be negatively autocorrelated

(iii) Use dummy variables to remove outlying
B. Residuals appear not to be autocorrelated observations

C. The test result is inconclusive (iv) Try a model in first differenced form rather
than in levels.
12. Suppose that a researcher wishes to test for
autocorrelation using an approach based on an A. (ii) and (iv) only
auxiliary regression. Which one of the following
auxiliary regressions would be most appropriate? B. (i) and (iii) only

C. (i), (ii), and (iii) only

(i)
D. (i), (ii), (iii), and (iv)
(ii)
15. Which of the following could result in
autocorrelated residuals?

(i) Slowness of response of the dependent variable

(iii) to changes in the values of the independent
variables
(iv)
(ii) Over-reactions of the dependent variable to
changes in the independent variables
A. (i)
(iii) Omission of relevant explanatory variables
B. (ii) that are autocorrelated

C. (iii) (iv) Outliers in the data

D. (iv) A. (ii) and (iv) only

13. If OLS is used in the presence of B. (i) and (iii) only

autocorrelation, which of the following will be
likely consequences? C. (i), (ii), and (iii) only

(i) Coefficient estimates may be misleading D. (i), (ii), (iii), and (iv)

(ii) Hypothesis tests could reach the wrong 16. Including relevant lagged values of the
conclusions dependent variable on the right hand side of a
regression equation could lead to which one of the
(iii) Forecasts made from the model could be following?
biased
A. Biased but consistent coefficient estimates
(iv) Standard errors may inappropriate
B. Biased and inconsistent coefficient estimates
A. (ii) and (iv) only
C. Unbiased but inconsistent coefficient estimates
B. (i) and (iii) only
D.Unbiased and consistent but inefficient coefficient
estimates
17. Near multicollinearity occurs when
A. Two or more explanatory variables are perfectly
correlated with one another
B. The explanatory variables are highly correlated
with the error term
C. The explanatory variables are highly correlated with
the dependent variable
D. Two or more explanatory variables are highly
correlated with one another
18. Which one of the following is NOT a plausible
remedy for near multicollinearity?
A. Use principal components analysis
B. Drop one of the collinear variables
C. Use a longer run of data
D. Take logarithms of each of the variables
19. What will be the properties of the OLS
estimator in the presence of multicollinearity?
A. It will be consistent, unbiased and efficient
B. It will be consistent and unbiased but not efficient
C. It will be consistent but not unbiased
D It will not be consistent
20. Which one of the following is NOT an example
of mis-specification of functional form?
A. Using a linear specification when y scales as a
function of the squares of x
B. Using a linear specification when a double-
logarithmic model would be more appropriate
C. Modelling y as a function of x when in fact it scales
as a function of 1/x
D. Excluding a relevant variable from a linear
regression model
21. If the residuals from a regression estimated
using a small sample of data are not normally
distributed, which one of the following
consequences may arise?
A. The coefficient estimates will be unbiased but
inconsistent
B. The coefficient estimates will be biased but
consistent
C. The coefficient estimates will be biased and
inconsistent
D. Test statistics concerning the parameters will not
follow their assumed distributions.
22. A leptokurtic distribution is one which
A. Has fatter tails and a smaller mean than a normal
distribution with the same mean and variance
B. Has fatter tails and is more peaked at the mean than
a normal distribution with the same mean and
variance
C. Has thinner tails and is more peaked at the mean
than a normal distribution with the same mean and
variance
D. Has thinner tails than a normal distribution and is
skewed
23. Under the null hypothesis of a Bera-Jarque test,
the distribution has
A. Zero skewness and zero kurtosis
B. Zero skewness and a kurtosis of three
C. Skewness of one and zero kurtosis
D. Skewness of one and kurtosis of three
24. Which one of the following would be a
plausible response to a finding of residual non-
normality?
A. Use a logarithmic functional form instead of a linear
one
B. Add lags of the variables on the right hand side of
the regression model
C. Estimate the model in first differenced form
D. Remove any large outliers from the data
25. A researcher tests for structural stability in the
following regression model:
(3)
The total sample of 200 observations is split
exactly in half for the sub-sample regressions.
Which would be the unrestricted residual sum of
squares?
A. The RSS for the whole sample
B. The RSS for the first sub-sample 30. If a relevant variable is omitted from a
regression equation, the consequences would be
C. The RSS for the second sub-sample that:

D. The sum of the RSS for the first and second sub- (i) The standard errors would be biased
samples
(ii) If the excluded variable is uncorrelated with all
26. Suppose that the residual sum of squares for of the included variables, all of the slope
the three regressions corresponding to the Chow coefficients will be inconsistent.
test described in question 25
(iii) If the excluded variable is uncorrelated with
all of the included variables, the intercept
[ ] are 156.4, 76.2 and coefficient will be inconsistent.
61.9. What is the value of the Chow F-test statistic?
(iv) If the excluded variable is uncorrelated with
A. 4.3 all of the included variables, all of the slope and
intercept coefficients will be consistent and
B. 7.6
unbiased but inefficient.
C. 5.3
A. (ii) and (iv) only
D. 8.6
B. (i) and (iii) only
27. What would be the appropriate 5% critical
C. (i), (ii), and (iii) only
value for the test described in questions 25 and
D. (i), (ii), (iii), and (iv)
26? [ ]
31. A parsimonious model is one that
A. 2.6
A. Includes too many variables
B. 8.5
B. Includes as few variables as possible to explain the
C. 1.3
data
D. 9.2
C. Is a well-specified model
28. Suppose now that a researcher wants to run a
D. Is a mis-specified model
forward predictive failure test on the last 5
observations using the same model and data as in 32. An overparameterised model is one that
question 25 [ ]. A. Includes too many variables
Which would now be the unrestricted residual
sum of squares? B. Includes as few variables as possible to explain the
data
A. The RSS for the whole sample regression
C. Is a well-specified model
B. The RSS for the long sub-sample regression
D. Is a mis-specified model
C. The RSS for the short sub-sample regression
33. Which one of the following is a disadvantage of
D. The sum of the RSS for the long and short sub- the general to specific or “LSE” (“Hendry”)
sample regressions approach to building econometric models, relative
to the specific to general approach?
29. If the two RSS for the test described in question
28 are 156.4 and 128.5, what is the value of the A. Some variables may be excluded at the first stage
test statistic? leading to coefficient biases
A. 13.8 B. The final model may lack theoretical interpretation
B. 14.3 C. The final model may be statistically inadequate
C. 8.3 D. If the initial model is mis-specified, all subsequent
steps will be invalid
D. 8.6
34. Which of the following consequences might
apply if an explanatory variable in a regression is
measured with error?
(i) The corresponding parameter will be estimated
inconsistently
(ii) The corresponding parameter estimate will be
biased towards zero
(iii) The assumption that the explanatory
variables are non-stochastic will be violated
(iv) No serious consequences will arise
A. (i) only
B. (i) and (ii) only
C. (i), (ii), and (iii) only
D. (iv) only
35. Which of the following consequences might
apply if the explained variable in a regression is
measured with error?
(i) The corresponding parameter will be estimated
inconsistently
(ii) The corresponding parameter estimate will be
biased towards zero
(iii) The assumption that the explanatory
variables are non-stochastic will be violated
(iv) No serious consequences will arise
A. (i) only
B. (i) and (ii) only
C. (i), (ii), and (iii) only
D. (iv) only
CHƯƠNG 6
1. Which of the following is a typical characteristic
of financial asset return time-series?
A. Their distributions are thin-tailed
B. They are not weakly stationary
C. They are highly autocorrelated
D. They have no trend
2. Which of the following is a DISADVANTAGE of
using pure time-series models (relative to
structural models)?
A. They are not theoretically motivated
B. They cannot produce forecasts easily
C. They cannot be used for very high frequency data
D. It is difficult to determine the appropriate
explanatory variables for use in pure time-series
models
3. Which of the following conditions are necessary
for a series to be classifiable as a weakly stationary
process?
(i) It must have a constant mean
(ii) It must have a constant variance
(iii) It must have constant autocovariances for
given lags
(iv) It must have a constant probability
distribution
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv).
4. A white noise process will have
(i) A zero mean
(ii) A constant variance
(iii) Autocovariances that are constant
(iv) Autocovariances that are zero except at lag
zero
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
5. Consider the following sample autocorrelation
estimates obtained using 250 data points:
Lag 1 2 3
Coefficient 0.2 -0.15 -0.1
Assuming that the coefficients are approximately
normally distributed, which of the coefficients are
statistically significant at the 5% level?
A. 1 only
B. 1 and 2 only 9. Consider a series that follows an MA(1) with
zero mean and a moving average coefficient of 0.4.
C. 1, 2 and 3 only What is the value of the autocovariance at lag 1?

D. It is not possible to determine the statistical A. 0.4

significance since no standard errors have been given
B. 1
6. Consider again the autocorrelation coefficients
described in question 5. The value of the Box- C. 0.34
Pierce Q-statistic is
D. It is not possible to determine the value of the
A. 0.12 autocovariances without knowing the disturbance
variance.
B. 37.50
10. For an autoregressive process to be considered
C. 18.12 stationary

D. 18.09 A. The roots of the characteristic equation must all lie

inside the unit circle
7. Which of the following statements is INCORRECT
concerning a comparison of the Box-Pierce Q and B. The roots of the characteristic equation must all lie
the Ljung-Box Q* statistics for linear dependence on the unit circle
in time series?
C. The roots of the characteristic equation must all lie
A. Asymptotically, the values of the two test statistics outside the unit circle
will be equal
D. The roots of the characteristic equation must all be
B. The Q test has better small-sample properties than less than one in absolute value
the Q*.
11. Consider the following AR(2) process: 𝒚𝒕 =
C. The Q test is sometimes over-sized for small 𝟏. 𝟓𝒚𝒕−𝟏 − 𝟎. 𝟓𝒚𝒕−𝟐 + 𝒖𝒕
samples
This is a
D. As the sample size tends towards infinity, both tests
will show a tendency to always reject the null A. Stationary process
hypothesis of zero autocorrelation coefficients
B. Unit root process
8. Consider the following MA(3) process
C. Explosive process
𝒀𝒕 = 𝛍 + 𝜺𝒕 + 𝜽𝟏 𝜺𝒕−𝟏 + 𝜽𝟐 𝜺𝒕−𝟐 + 𝜽𝟑 𝜺𝒕−𝟑
D. Stationary and unit root process
Where 𝜺𝒕 is a zero mean white noise process with
variance s2. 12. Consider the following AR(1) model with the
disturbances having zero mean and unit variance
Which of the following statements are true
𝒚𝒕 = 𝟎. 𝟐 + 𝟎. 𝟒𝒚𝒕−𝟏 + 𝒖𝒕
(i) The process yt has zero mean
The (unconditional) mean of y will be given by
(ii) The autocorrelation function will have a zero
value at lag 5 A. 0.2

(iii) The process yt has variance s2 B. 0.4

(iv) The autocorrelation function will have a value C. 0.5

of one at lag 0
D. 0.33
A. (ii) and (iv) only
13. The (unconditional) variance of the AR(1)
B. (i) and (iii) only process for y given in question 12 will be

C. (i), (ii) and (iii) only A. 1.19

D. (i), (ii), (iii) and (iv) B. 2.5

C. 1 18. The pacf is necessary for distinguishing
between
D. 0.33
A. An AR and an MA model
14. The value of the autocovariance function at lag
3 for the AR(1) model given in question 12 will be B. An AR and an ARMA model

A. 0.4 C. An MA and an ARMA model

B. 0.064 D. Different models from within the ARMA family

C. 0 19. The characteristic roots of the MA process

D. 0.076 𝒚𝒕 = -3𝒖𝒕−𝟏 + 𝒖𝒕−𝟐 + 𝒖𝒕

15. The value of the autocorrelation function at lag are

3 for the AR(1) model given in question 12 will be
A. 1 and 2
A. 0.4
B. 1 and 0.5
B. 0.064
C. 2 and -0.5
C. 0
D. 1 and -3
D. 0.076
20. Consider the following picture and suggest the
16. Which of the following statements are true model from the following list that best
concerning the autocorrelation function (acf) and characterises the process:
partial autocorrelation function (pacf)?

(i) The acf and pacf will always be identical at lag

one whatever the model

(ii) The pacf for an MA(q) model will in general be

non-zero beyond lag q

(iii) The pacf for an AR(p) model will be zero

beyond lag p

(iv) The acf and pacf will be the same at lag two for
an MA(1) model
A. An AR(1)
A. (ii) and (iv) only
B. An ARMA(2,1)
B. (i) and (iii) only
C. An MA(2)
C. (i), (ii), and (iii) only
D. An AR(2)
D. (i), (ii), (iii), and (iv).
21. Consider the following picture and suggest the
17. An ARMA(p,q) (p, q are integers bigger than model from the following list that best characterises
zero) model will have the process:

A. An acf and pacf that both decline geometrically

B. An acf that declines geometrically and a pacf that is

zero after p lags

C. An acf that declines geometrically and a pacf that is

zero after q lags

D. An acf that is zero after p lags and a pacf that is zero

after q lags
A. An MA(2)
B. An AR(2)
C. An ARMA(1,1)
D. An AR(1)
22. Which of the following statements are true
concerning the acf and pacf?
(i) The acf and pacf are often hard to interpret in
practice
(ii) The acf and pacf can be difficult to calculate for
some data sets
(iii) Information criteria represent an alternative
approach to model order determination
(iv) If applied correctly, the acf and pacf will
always deliver unique model selections
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
23. Which of the following statements are true
concerning the Box-Jenkins approach to diagnostic
testing for ARMA models?
(i) The tests will show whether the identified
model is either too large or too small
(ii) The tests involve checking the model residuals
for autocorrelation, heteroscedasticity, and non-
normality
(iii) If the model suggested at the identification
stage is appropriate, the acf and pacf for the
residuals should show no additional structure
(iv) If the model suggested at the identification
stage is appropriate, the coefficients on the
additional variables under the overfitting
approach will be statistically insignificant
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
24. Which of the following statements are true
concerning information criteria?
(i) Adjusted R-squared is an information criterion
(ii) If the residual sum of squares falls when an
additional term is added, the value of the
information criterion will fall
(iii) Akaike’s information criterion always leads to
model orders that are at least as large as those of
Schwarz’s information criterion
(iv) Akaike’s information criterion is consistent
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
25. Consider the following ARMA(2,1) equation
(with standard errors in parentheses) that has
been estimated as part of the Box-Jenkins
overfitting strategy for testing the adequacy of the
chosen AR(1) mmodel.
Which model do you think, given these results, is
the most appropriate for the data?
A. An AR(1)
B. An AR(2)
C. An ARMA(2,1)
D. The appropriate response to this set of diagnostic
results would be to go back to the identification stage
and propose a larger model
26. Which of the following statements are true
concerning the class of ARIMA(p,d,q) models?
(i) The “I” stands for independent
(ii) An ARIMA(p,1,q) model estimated on a series
of logs of prices is equivalent to an ARIMA(p,0,q)
model estimated on a set of continuously
compounded returns
(iii) It is plausible for financial time series that the
optimal value of d could be 2 or 3.
(iv) The estimation of ARIMA models is
incompatible with the notion of cointegration
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv) A. 0

27. Which of the following statements is true B. 0.3

concerning forecasting in econometrics?
C. 0.24
A. Forecasts can only be made for time-series data
D. 0.64
B. Mis-specified models are certain to produce
inaccurate forecasts 32. What is the optimal three-step ahead forecast from
the MA(2) model given in question 31?
C. Structural forecasts are simpler to produce than
those from time series models A. 0

D. In-sample forecasting ability is a poor test of model B. 0.3

adequacy
C. 0.24
28. If a series, y, follows a random walk, what is the
optimal one-step ahead forecast of y? D. 0.64

A. The current value of y 33. Which of the following statements are true
concerning the estimation and forecasts of an
B. zero exponential smoothing model,

C. one 𝑺𝒕 = a 𝒚𝒕 + (1-a) 𝑺𝒕−𝟏 ?

D. The average value of y over the in-sample period
29. If a series, y, follows a random walk with drift
b, what is the optimal one-step ahead forecast of
the change in y?
A. The current value of y
B. zero
C. one
D. The average value of the change in y over the in-
sample period
30. An “ex ante” forecasting model is one which
A. Includes only contemporaneous values of variables
on the RHS
(i) Using the standard notation, the larger the
value of a, the less weight is attached to more
recent observations
(ii) If a = 0, there will be no updating as new
observations become available
(iii) The one-step ahead forecast only from an
exponential smoothing model will be the most
recently available smoothed value
(iv) If a = 1, the model is equivalent to a random
walk for the series y
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only

B. Includes only contemporaneous and previous D. (i), (ii), (iii), and (iv)
values of variables on the RHS
34. Which one of the following statements is true
C. Includes only previous values of variables on the concerning alternative forecast accuracy
RHS measures?

D.Includes only contemporaneous values of exogenous A. Mean squared error is usually highly correlated
variables on the RHS with trading rule profitability

31. Consider the following MA(2) model
𝒚𝒕 = 𝟎. 𝟑 + 𝟎. 𝟓𝒖𝒕−𝟏 − 𝟎. 𝟒𝒖𝒕−𝟐 + 𝒖𝒕
What is the optimal two-step ahead forecast from
this model, made at time t, if the values of the
residuals from the model at time t and t-1 were 0.6
and –0.1 respectively and the values of the actual
series y at time t-1 was –0.4?
B. Mean absolute error provides a quadratic loss
function
C. Mean absolute percentage error is a useful measure
for evaluating asset return forecasts
D. Mean squared error penalises large forecast errors
disproportionately more than small forecast errors
35. Which one of the following factors is likely to B. (i) and (iii) only
lead to a relatively high degree of out-of-sample
forecast accuracy? C. (i), (ii), and (iii) only

A. A model that is based on financial theory D. (i), (ii), (iii), and (iv)

B. A model that contains many variables 4. Consider the following system of equations
(with time subscripts suppressed and using
C. A model whose dependent variable has recently standard notation)
exhibited a structural change

D. A model that is entirely statistical in nature with no

room for judgmental modification of forecasts

CHƯƠNG 7

1. In the context of simultaneous equations According to the order condition, the first equation
modelling, which of the following statements is is
true concerning an endogenous variable?
A. Unidentified
A. The values of endogenous variables are determined
outside the system B. Just identified

B. There can be fewer equations in the system than C. Over-identified

there are endogenous variables
D. It is not possible to tell whether the equation is
C. Reduced form equations will not contain any identified since the question does not give the reduced
endogenous variables on the RHS form models

D. Reduced form equations will contain only
endogenous variables on the RHS
2. If OLS is applied separately to each equation that
is part of a simultaneous system, the resulting
estimates will be
A. Unbiased and consistent
B. Biased but consistent
C. Biased and inconsistent
D. It is impossible to apply OLS to equations that are
part of a simultaneous system
3. Which of the following statements are true
concerning a triangular or recursive system?
(i) The parameters can be validly estimated using
separate applications of OLS to each equation
5. Consider again the system of equations in
question 4. According to the order condition, the
second equation is
A. Unidentified
B. Just identified
C. Over-identified
D. It is not possible to tell whether the equation is
identified since the question does not give the reduced
form models
6. Consider again the system of equations in
question 4. Which estimation method, if any, can
be used for the third equation in the system:
(i) OLS
(ii) 2SLS

(ii) The independent variables may be correlated (iii) ILS

with the error terms in other equations
A. (ii) only
(iii) An application of 2SLS would lead to unbiased
but inefficient parameter estimates B. (ii) and (iii) only

(iv) The independent variables may be correlated C. (i), (ii), and (iii)
with the error terms in the equations in which
D. The coefficients cannot be validly estimated using
they appear as independent variables
any method
A. (ii) and (iv) only
7. The order condition is
A. A necessary and sufficient condition
identification
B. A necessary but not sufficient condition for
identification
C. A sufficient but not necessary condition for
identification
D. A condition that is nether necessary nor sufficient
for identification
8. A Hausman test would be used for
A. Determining whether an equation that is part of a
simultaneous system is identified
B. Determining whether a simultaneous framework is
needed for a particular variable
C. Determining whether 2SLS or ILS is optimal
D. Determining whether the structural form equations
can be obtained via substitution from the reduced
forms
9. Which of the following estimation techniques
are available for the estimation of over-identified
systems of simultaneous equations?
(i) OLS
(ii) ILS
(iii) 2SLS
(iv) IV
A. (iii) only
B. (iii) and (iv) only
C. (ii), (iii), and (iv) only
D. (i), (ii), (iii) and (iv)
10. Which of the following are advantages of the
VAR approach to modelling the relationship
between variables relative to the estimation of full
structural models?
(i) VARs receive strong motivation from financial
and economic theory
(ii) VARs in their reduced forms can be used easily
to produce time-series forecasts
(iii) VAR models are typically highly parsimonious
(iv) OLS can be applied separately to each
equation in a reduced form VAR
A. (ii) and (iv) only
for B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
11. How many parameters will be required to be
estimated in total for all equations of a standard
form, unrestricted, tri-variate VAR(4), ignoring the
intercepts?
A. 12
B. 4
C. 3
D. 36
12. Which one of the following statements is true
concerning VARs?
A. The coefficient estimates have intuitive theoretical
interpretations
B. The coefficient estimates usually have the same sign
for all of the lags of a given variable in a given equation
C. VARs often produce better forecasts than
simultaneous equation structural models
D. All of the components of a VAR must be stationary
before it can be used for forecasting
13. Suppose that two researchers, using the same 3
variables and the same 250 observations on each
variable, estimate a VAR. One estimates a VAR(6),
while the other estimates a VAR(4). The
determinants of the variance-covariance matrices
of the residuals for each VAR are 0.0036 and
0.0049 respectively. What is the values of the test
statistic for performing a test of whether the
VAR(6) can be restricted to a VAR(4)?
A. 77.07
B. 0.31
C. 0.33
D. 4.87
14. Consider again the VARs that were discussed in
question 13. What is the number of degrees of
freedom for the critical value for testing the
restriction?
A. 3
B. 6
C. 9
D. 18
15. Suppose now that a researcher wishes to use
information criteria to determine the optimal lag
length for a VAR. 500 observations are available
for the bi-variate VAR, and the values of the
determinant of the variance-covariance matrix of
residuals are 0.0336, 0.0169, 0.0084, and 0.0062
for 1, 2, 3, and 4 lags respectively. What is the
optimal model order according to Akaike’s
information criterion?
A. 1 lag
B. 2 lags
C. 3 lags
D. 4 lags
16. Consider the following bivariate VAR(2) model:
Which one of the following conditions must hold
for it to be said that Granger causality runs from
y1 to y2 only?
A. The b coefficients significant and the d coefficients
insignificant
B. The d coefficients significant and the b coefficients
insignificant
C. The a coefficients significant and the c coefficients
insignificant
D. The c coefficients significant and the a coefficients
insignificant
17. Consider again the VAR model of equation 16.
Which of the following conditions must hold for it
to be said that there is bi-directional feedback?
A. The b and d coefficients significant and the a and c
coefficients insignificant
B. The a and c coefficients significant and the b and d
coefficients insignificant
C. The a and c coefficients significant
D. The b and d coefficients significant
18. Which of the following statements is true
concerning variance decomposition analysis of
VARs?
(i) Variance decompositions measure the impact of
a unit shock to each of the variables on the VAR
(ii) Variance decompositions can be thought of as
measuring the proportion of the forecast error
variance that is attributable to each variable
(iii) The ordering of the variables is important for
calculating impulse responses but not variance
decompositions
(iv) It is usual that most of the forecast error
variance for a given variable is attributable to
shocks to that variable
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
19. What problems may arise if standard unit root
tests are used in the presence of structural breaks
in a time series?
A. The tests may lack power
B. The tests may be oversized
C. The tests may fail to reject the null hypothesis when
it is incorrect
D. All of (a) to (c) could potentially apply
CHƯƠNG 8
1. Which one of the following would NOT be a
consequence of using non-stationary data in levels
form?
A. The regression R² may be spuriously high
B. Test statistics may not follow standard distributions
C. Statistical inferences may be invalid
D. Parameter estimates may be biased
2. For a stationary autoregressive process, shocks
will
A. Eventually die away
B. Persist indefinitely
C. Grow exponentially
D. Never occur
3. Consider the following model for yt:
Which one of the following most accurately
describes the process for yt?
A. A unit root process
B. A stationary process
C. A deterministic trend process
D. A random walk with drift
4. If a series, yt is said to be integrated of order 2,
which of the following statements is INCORRECT?
(i) It requires differencing twice to generate a
stationary series
(ii) It contains exactly two unit roots
(iii) If the series is differenced three times, the
resulting series will be stationary
(iv) A plausible model for the series would be
A. (i)
B. (ii)
C. (iii)
D. (iv)
5. Which of the following are characteristics of a
stationary process?
(i) It crosses its mean value frequently
(ii) It has constant mean and variance
(iii) It contains no trend component
(iv) It will be stationary in first difference form
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
6. Consider the following two ways of expressing
the Dickey-Fuller test regression:
Which one of the following restrictions must hold?
(i)
(ii)
(iii)
(iv)
A. (i)
B. (ii)
C. (iii)
D. (iv)
7. Note that statistical tables are not necessary to
answer this question. For a sample of 1000
observations, the Dickey-Fuller test statistic values
are
A. More negative than (i.e. bigger in absolute value
than) those in the left hand tail of a normal
distribution
B. Less negative than (i.e. smaller in absolute value
than) those in the left hand tail of a normal
distribution
C. Obtained from an analytical formula for the density
of the Dickey-Fuller distribution
D. More negative (i.e. bigger in absolute value) for a
10% size of test than a 5% test
8. The purpose of “augmenting” the Dickey-Fuller
test regression is to
A. Ensure that there is no heteroscedasticity in the test
regression residuals
B. Ensure that the test regression residuals are
normally distributed
C. Ensure that there is no autocorrelation in the test
regression residuals
D. Ensure that all of the non-stationarity is taken into
account
9. Suppose that the following regression is
conducted
and the test statistic takes a value of +3.2.
What is the appropriate conclusion?
(i) yt is stationary
(ii) yt contains exactly one unit root
(iii) yt contains at least one unit root
(iv) yt contains exactly two unit roots
A. (i)
B. (ii)
C. (iii)
D. (iv)
10. Suppose that the following Dickey-Fuller test
regression is conducted
and the value of the test statistic is –6.3.
What is the appropriate conclusion?
(i) yt is stationary
(ii) yt contains exactly one unit root
(iii) yt contains at least one unit root
(iv) yt contains exactly two unit roots
A. (i)
B. (ii)
C. (iii)
D. (iv)
11. If two variables, xt and yt are said to be
cointegrated, which of the following statements
are true?
(i) 𝒙𝒕 and 𝒚𝒕 must both be stationary
(ii) Only one linear combination of 𝒙𝒕 and 𝒚𝒕 will be
stationary
(iii) The cointegrating equation for 𝒙𝒕 and 𝒚𝒕
describes the short-run relationship between the
two series
(iv) The residuals of a regression of 𝒚𝒕 on 𝒙𝒕 must
be stationary
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
12. If the Engle-Granger test is applied to the
residuals of a potentially cointegrating regression,
what would be the interpretation of the null
hypothesis?
A. The variables are cointegrated
B. The variables are not cointegrated
C. Both variables are stationary
D. Both variables are non-stationary
13. Consider the following model for yt:
Which of the following statements are true?
(i) The gamma terms measure the long-run
relationship between y and x
(ii) The gamma terms measure the short-run
relationship between y and x
(iii) Hypothesis tests cannot validly be conducted
on the gamma terms
(iv) Hypothesis tests cannot validly be conducted
on the beta terms
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
14. Which of the following are disadvantages of the
Dickey-Fuller / Engle-Granger approach to testing
for cointegration and modelling cointegrating
relationships?
(i) Only one cointegrating relationship can be
estimated
(ii) Particularly for small samples. There is a high
chance of the tests suggesting that variables are
not cointegrated when they are
(iii) It is not possible to make inferences on the
cointegrating regression
(iv) The procedure forces the researcher to specify
which is the dependent variable and which are the
independent variables.
A. (ii) and (iv) only
B. (i) and (iii) only
C. (i), (ii), and (iii) only
D. (i), (ii), (iii), and (iv)
15. What is the main difference between the
Dickey Fuller (DF) and Phillips-Perron (PP)
approaches to unit root testing?
D. The rank cannot be calculated without being told
the eigenvalues
19. An appropriate way to describe the pi matrix in
question 17 would be to say that it is
A. Of full rank

A. ADF is a single equation approach to unit root B. A zero matrix

testing while PP is a systems approach
B. PP tests reverse the DF null and alternative
hypotheses so that there is stationarity under the null
hypothesis of the PP test
C. The PP test incorporates an automatic correction for
autocorrelated residuals in the test regression
C. A singular matrix
D. A non-zero determinant matrix
20. Consider a system containing 4 variables, and
where the Johansen test has been applied with the
following results:

D. PP tests have good power in small samples whereas r λmax 5% Critical

DF tests do not value
0 29.65 30.26
16. Which one of the following criticisms of the 1 20.91 23.84
Dickey-Fuller/Engle-Granger approach to dealing 2 10.67 17.72
with cointegrated variables is overcome by the 3 8.55 10.71
Engle-Yoo (EY) procedure?

A. In the context of small samples, Dickey Fuller tests A. 0

are prone to conclude that there is a unit root in a
series when there is not B. 1

B. The Engle-Granger (EG) approach can only detect C. 2

up to one cointegrating relationship even though there
could be more than one D. 3

C. The variables are treated asymmetrically in the
cointegrating tests
D. It is not possible to perform tests about the
cointegrating relationship
17. What are the characteristic roots of the
21. If a Johansen “trace” test for a null hypothesis
of 2 cointegrating vectors is applied to a system
containing 4 variables is conducted, which
eigenvalues would be used in the test?
A. All of them
B. The largest 2

C. The smallest 2
following matrix ?
D. The second largest
A. 0 and 8
22. What problems may arise if the Perron (1989)
B. 0 and 4 procedure that allows for a known structural
C. 2 and 4 break is used when testing for a unit root?

(i) The actual break date may not be known in

D. 2 and 3
advance and the procedure does not incorporate
18. What is the rank of the pi matrix given in an approach to determine the break date
question 17?
(ii) If the break date is determined by examining
A. 0 the data, then the critical values Perron derived
will no longer be appropriate
B. 1
(iii) The test procedure can only allow for a break
C. 2 in the level of the series and not in the trend
growth rate
A. (i) only
B. (ii) only
C. (i) and (ii) only
D. All of (i), (ii) and (iii)
CHƯƠNG 11,12,13
1. Which of the following is a disadvantage of the
fixed effects approach to estimating a panel
model?
A. The model is likely to be technical to estimate
B. The approach may not be valid if the composite
error term is correlated with one or more of the
explanatory variables
C. The number of parameters to estimate may be large,
resulting in a loss of degrees of freedom
D. The fixed effects approach can only capture cross-
sectional heterogeneity and not temporal variation in
the dependent variable
2. The “within transform” involves
A. Taking the average values of the variables
B. Subtracting the mean of each entity away from each
observation on that entity
C. Estimating a panel data model using least squares
dummy variables
D. Using both time dummies and cross-sectional
dummies in a fixed effects panel model
3. Which of the following are advantages of the use
of panel data over pure cross-sectional or pure
time-series modelling?
(i) The use of panel data can increase the number
of degrees of freedom and therefore the power of
tests
(ii) The use of panel data allows the average value
of the dependent variable to vary either cross-
sectionally or over time or both
(iii) The use of panel data enables the researcher
allows the estimated relationship between the
independent and dependent variables to vary
either cross-sectionally or over time or both
A. (i) only
B. (i) and (ii) only
C. (ii) only
D. (i), (ii), and (iii)
4. Consider the following equation and determine
the class of model that it best represents:
A. An entity fixed effects model
B. A time fixed effects model
C. A random effects model
C. A pure time series model
5. The fixed effects panel model is also sometimes
known as
A. A seemingly unrelated regression model
B. The least squares dummy variables approach
C. The random effects model
D. Heteroscedasticity and autocorrelation consistent
6. Which of the following is a disadvantage of the
random effects approach to estimating a panel
model?
A. The approach may not be valid if the composite
error term is correlated with one or more of the
explanatory variables
B. The number of parameters to estimate may be large,
resulting in a loss of degrees of freedom
C. The random effects approach can only capture
cross-sectional heterogeneity and not temporal
variation in the dependent variable.
D. All of (a) to (c) are potential disadvantages of the
random effects approach.
7. In order to determine whether to use a fixed
effects or random effects model, a researcher
conducts a Hausman test. Which of the following
statements is false?
A. For random effects models, the use of OLS would
result in consistent but inefficient parameter
estimation
B. If the Hausman test is not satisfied, the random
effects model is more appropriate
C. Random effects estimation involves the construction
of “quasi-demeaned” data
D. Random effects estimation will not be appropriate if
the composite error term is correlated with one or
more of the explanatory variables in the model
8. Which of the following statements is false A. A logit model
concerning the linear probability model?
B. A multinomial logit
A. There is nothing in the model to ensure that the
estimated probabilities lie between zero and one C. A tobit model

B. Even if the probabilities are truncated at zero and
one, there will probably be many observations for
which the probability is either exactly zero or exactly
one
C. The error terms will be heteroscedastic and not
normally distributed
D. An ordered logit model
12. A dependent variable whose values are not
observable outside a certain range but where the
corresponding values of the independent variables
are still available would be most accurately
described as what kind of variable?

D. The model is much harder to estimate than a A. Censored

standard regression model with a continuous
dependent variable B. Truncated

9. Suppose that we estimate a logit model based on C. Multinomial variable

an intercept and two explanatory variables and
the parameter estimates are respectively:
and the average values of the explanatory
D. Discrete choice
13. Which of the following statements will be true
if the number of replications used in a Monte Carlo
study is small?

variables are: (i) The statistic of interest may be estimated

imprecisely
A 1-unit increase in x3 will cause an increase in the
probability that the outcome corresponding to y = (ii) The results may be affected by
1 to: unrepresentative combinations of random draws

A. Fall by 0.1 (iii) The standard errors on the estimated

quantities may be unacceptably large
B. Fall by 0.2
(iv) Variance reduction techniques can be used to
C. Fall by 0.05 reduce the standard errors

D. Increase by 0.3 A. (ii) and (iv) only

10. Which of the following is correct concerning
logit and probit models?
A. They use a different method of transforming the
model so that the probabilities lie between zero and
one
B. The logit model can result in too many observations
falling at exactly zero or exactly one
C. For the logit model, the marginal effect of a change
in one of the explanatory variables is simply the
estimate of the parameter attached to that variable,
whereas this is not the case for the probit model
D. The probit model is based on a cumulative logistic
function
11. Suppose that we wished to evaluate the factors
that affected the probability that an investor
would choose an equity fund rather than a bond
fund or a cash investment. Which class of model
would be most appropriate?
B. (i) and (iii) only
C. (i), (ii), and (iv) only
D. (i), (ii), (iii), and (iv)
14. Under which of the following situations would
bootstrapping be preferred to pure simulation?
(i) If it is desired that the distributional properties
of the data in the experiment are the same as those
of some actual data
(ii) If it is desired that the distributional
properties of the data in the experiment are
known exactly
(iii) If the distributional properties of the actual
data are unknown
(iv) If the sample of actual data available is very
small
A. (ii) and (iv) only D. Each series has a unit root under the alternative
hypothesis
B. (i) and (iii) only

C. (i), (ii), and (iv) only

D. (i), (ii), (iii), and (iv)

15. Which of the following statements are correct

concerning the use of antithetic variates as part of
a Monte Carlo experiment?

(i) Antithetic variates work by reducing the

number of replications required to cover the
whole probability space

(ii) Antithetic variates involve employing a similar

variable to that used in the simulation, but whose
properties are known analytically

(iii) Antithetic variates involve using the negative

of each of the random draws and repeating the
experiment using those values as the draws

(iv) Antithetic variates involve taking one over

each of the random draws and repeating the
experiment using those values as the draws

A. (ii) and (iv) only

B. (i) and (iii) only

C. (i), (ii), and (iv) only

D. (i), (ii), (iii), and (iv)

16. Suppose we have a panel of data with T = 250

and N = 2. What would be the most appropriate
procedure to test for unit roots?

A. A panel unit root test with common alternative

hypotheses

B. A panel unit root test allowing for heterogeneous

processes under the alternative hypothesis

C. A panel unit root test allowing for heterogeneous

processes under the null hypothesis

D. Separate unit root tests on each individual time

series

17. Panel unit root tests with common alternative

hypotheses assume:

A. Each series may follow a separate stochastic process

under the alternative hypothesis

B. Each series must follow the same stochastic process

under the alternative hypothesis

C. Each series has the same intercept and deterministic

trend growth rate, if these are included in the model