EXERCISE 2

Submitted to- Dr. inderjeet oberoi

Submitted By- Akshay Kushwaha

401508007

1
Spot price also seems to be increasing and positively skewed because mean is greater than
median.
Descriptive Statistic
Future Spot
Mean 2072.001 2037.214
Median 1846.500 1813.425
Maximum 5255.000 5098.450
Minimum 1024.000 1005.700
Std. Dev. 713.9555 711.7637
Skewness 2.024124 2.024238
Kurtosis 7.248589 7.230653

Jarque-Bera 3125.322 3111.689

Probability 0.000000 0.000000

Sum 4512818 4437053

Sum Sq. Dev. 1.11E+09 1.10E+09

Observations 2178 2178

The null hypothesis for the Jarque-Bera test is that the data is normally distributed; the alternate
hypothesis is that the data does not come from a normal distribution. Thus, this table of
descriptive statistic majorly tell us about the normality of the given data.

Interpretation

1. Future price data does not come from a normal distributed sample because the
probability value is less than 0.05 i.e. I can reject the null hypothesis.
2. Spot price data does not come from a normal distributed sample because the probability
value is less than 0.05 i.e. I can reject the null hypothesis.
Q2

The t-value measure the size of the difference relative to the variation in your sample data. In
another word, T is simply the calculated difference represented in units of standard error. The
greater the magnitude of T, the greater the evidence against null hypothesis.

Model interpretation

1. Constant C has p-value for test less than 0.05 therefore we can say that this variable is
significant and the true mean is not equal to comparison mean.
2. And for the variable spot also the p-value is less than 0.05 therefore we can say that this
variable is significant and the true mean is not equal to comparison mean.
Question 3
Normality Test:

The null hypothesis for the Jarque-Bera test is that the data is normally distributed; the alternate
hypothesis is that the data does not come from a normal distribution. Thus, this table and graph
of Normality test majorly tell us about the normality of the given data.

Interpretation

1. The p-value is less than 0.05 therefore we can reject null hypothesis.
2. The data does not come from a normality distribution sample.
Serial Correlation LM test:

The Breusch–Godfrey test is a test for autocorrelation in the errors in a regression model. The

null hypothesis is that there is no serial correlation of any order and alternate Hypothesis is that
there is serial correlation.

Interpretation

1. The p-value of chi-square is less than 0.05 therefore we can reject the null hypothesis.
2. There is serial correlation.
Heteroskedasticity Test:

The Breusch-Pagan-Godfrey Test is a test for heteroscedasticity of errors in regression model.

The null Hypothesis is that there is constant variance and alternate Hypothesis is that there is no
constant variance.

Interpretation

1. The p-value is less than 0.05 therefore we can reject the null hypothesis.
2. There is no constant variance.
Question 4
Re-estimating the model

As Unit root of both the series exist, we created the difference series for both of the variable i.e.
dfuture and dspot to overcome the unit root problem. With the difference series of spot and
future unit root is improved and we see that now p-value is less than 0.05 so we can say that the
stationary of model is also improving. So now we will proceed with the estimating equation.
Model 2 : dfuture c dspot

Here we can see the the F-stats value is 0.00000 which is statistically significant. But we need to
check other OLS assumptions too.

Residual diagnostic output 

1 Normality:

2 Breusch-Godfrey Serial Correlation LM Test:

3 Heteroskedasticity Test: Breusch-Pagan-Godfrey:

Question 5

To accept any equation model, we need to focus on 3 values which are p-value of F-test,
Adjusted R-squared value, and Durbin-Watson stat value. Ideally, they should be less than 0.05,
at least 0.25 and less than 2 respectively. If these 3 conditions are fulfilled then we can accept the
equation model.

Part I - Question 2 Interpretation:

a) P-value of F-statistic test = 0.0000 < 0.05 (Accepted)

b) Adjusted R-squared = 0.996 > 0.25 (Accepted)
c) Durbin-Watson stat = 0.3945 < (Accepted)

Since all the 3 conditions are satisfied in a well manner and are well within prescribed range,
thus this equation model is significant. Hence model is significant and accepted.
Part II – Question 4 Interpretation

a) P-value of F-statistic test = 0.0000 < 0.05 (Accepted)

b) Adjusted R-squared = 0.996 > 0.25 (Accepted)
c) Durbin-Watson stat = 0.3945 < (Accepted)

Since all the 3 conditions are satisfied in a well manner and are well within prescribed range,
thus this equation model is significant. Hence model is significant and accepted.