MIDTERM EXAMINATION RESEARCH METHODS IN FINANCE Duration: 120 minutes Head of Department of | Lecturer: Student ID: Date: Mathematics ; iW fol. a Name: November Prof. Pham Huu Anh Ngoc | Dr. Nguyen Phuong Anh 2021 INSTRUCTIONS: 1. This is an open book examination 2. Students submit the exam paper on Blackboard before 10:15. Total pages: 03 (including this page) Question 1. (20 points) Suppose you want to estimate a wage equation for married women of the form: In AGE) = B: + B» HOURS + Bs EDUC+ By EXPER+ e where WAGE is hourly wage, HOURS is the number of working hours per week, EDUC is years of education, EXPER is years of experience. Your classmate observes that higher wages can bring forth increased work effort, and that married women with young children may reduce their hours of work to take care of them, so that there may be an auxiliary relationship such as: HOUR: 5 =a, + a2 In( WAGE) + a3 KIDS + w where KIDS is the number of children under the age of 6 in the woman’s household. a) Can the WAGE equation be estimated satisfactorily using least squares estimator? If not, why not? b) Is the WAGE equation “identified”? What does the term identification mean in this context? ©) If you seek an alternative to least squares estimation for the wage equation, suggest an estimation procedure and explain how it is carried out step by step.Question 2. (20 points) ae a) Briefly explain Pooled Regression, Firm Fixed Effect Model, Random Effect Model for panel regression. b) Explain how Firm Fixed Effects Model is equivalent to Ordinary Least Squares regression with dummy variables. ©) Give the procedure including the main tests and diagnostic tests to ran Panel regression model. Question 3. (20 points) a) What is your conclusion regarding the Redundant Fixed Effect Test (also called the F-test) results regarding Panel Regression when p-value is equal to 0,002? b) What is your conclusion about the Hausman Test results for Panel Regression when p-value is equal to 0.0237 ¢) What is your conclusion about the Breusch-Pagan Lagrange Multiplier Test results for Panel Regression when p-value is equal to 0.835? Question 4. (20 points) a) What are the advantages and drawbacks of the VAR models? How to determine the appropriate lag length k of a VAR(k) model? b) Write down a full VAR model with 2 variables and 2 lags. Explain the Granger causality test. Give an example of Impulse response. Question 5. (20 points) The following equation gives the results of the Logit model when the dependent variable Y measures the creditworthiness of a specific bank’s customers, against the independent variables defined as follows: Y=1 when the customer is creditworthy, when the customer is not creditworthy, Liquidation: graded from 5 to 1, to give information about the repayment of. principal and interest with the bank over the past 12 months up to the time of assessment, to be good or not, Field: graded from 5 to 1, to give information about the development prospect of the industry in which the borrower is working, to be very developed in the near future or not, Income: graded from 5 to 1, to give information about monthly income, very high or not, 2= Labor contract: graded from $ to 1, to give information about the type of labor contract, over 5 years or less, Relationship: graded from 5 to 1, gives information about the credit time with the bank, above 3 years or less, F is the logit function. P(Y=1) = F (-28.553 + 4.350 LIQUIDATION + 2.809 FIELD + 1.497 INCOME + 0.467 LABOURCONTRACT - 1.410 RELATIONSHIP) a) With the p-values of the corresponding parameters given in the last column of the following table, which variables are significant? Do the results fit your expectations? Field Labour contract Income Relationship Liquidation Constant P(Y=1) for a new customer with the . 4, 1, 4 respectively? b) What is the estimated probabili independent variables equal to 5, ¢) Is this customer creditworthy? ) What is the odd ratio for this customer? e) What is the marginal effect with respect to income for this customer?