Quantitative Analysis for Finance - Essay Example

b) The variable TOTREVFRAN has been computed according to its definition specified and being included in the adjoining .sav file. The scatter diagram associated with the trend that the variable takes over time has been depicted in the graph below. c) Financial data computed at current time implies those which are not corrected for the rate of inflation, in contrast to real data which indeed are corrected for inflation, prevailing at a certain base year. The real variable REALREVFRAN has been computed by correcting TOTREVFRAN for inflation with the base year 2005 (= 100).

The formula being used is, d) The variable TRADEUKFRAN, aiming to figure out openness to trade of UK towards France, has been computed in the adjoining .sav file by means of the method being specified. Hence, the method of calculation involved is, e) The Harmonised Index of Consumer Price is a method of figuring out the extent of inflation and prevailing in an economy. It is commonly used by the European Central Bank to calculate the degree of price stability of the entire European Union. The method of computation is through estimating the weighted averages of the price indices of all nations underlying EU and who have adopted the Euro, at any given point of time (OECD, 2003, p. 77). f) Stepwise method of regression separates the factors which turn out to be insignificant from those that are significant in explaining a predictor, so as to yield the most effective regression model ultimately.

Regressing REALREVFRAN against TRADEUKFRAN, STERPEREURO, HICPTRANSPORT, HICPRECCULT, HICPHOTELREST, HICPALL and REALGDPFRAN, in a stepwise method, yielded the following regression model – The values in parentheses are the estimated levels of significance of the parameters. Though the slopes corresponding to HICPTRAN and REALGDPFRAN are found to be significant even at a 99% confidence interval, the same is not true for the other