Questions
BU.232.630.W4.SP25 sample_quiz_3
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Consider the following model for the mean of asset returns rt: rt=α+βzt−1+εt where zt−1 is a predictor of the returns. The model for the volatility is εt= √ ht ut ht=μ*+ϕ * 1 ε 2 t−1 +ϕ * 2 ε 2 t−2 +ϕ * 3 ε 2 t−3 𝔼t−1(ut)=0 𝔼t−1(u 2 t )=1 What is the conditional expected value of the returns 𝔼t−1(rt)? Choose the best answer below.
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Step-by-Step Analysis
To find the conditional expectation E_{t-1}(r_t), start from the given model r_t = α + β z_{t-1} + ε_t.
First, separate the components that are known at time t-1 from the random pa......Login to view full explanationLog in for full answers
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