(i) Use NYSE.RAW to estimate equation. Let ĥt. be the fitted values from this equation (th...

(i) Use NYSE.RAW to estimate equation. Let ĥt. be the fitted values from this equation (the estimates of the conditional variance). How many ĥt are negative?

(ii) Add return1 1 to (12.48) and again compute the fitted values, ĥt . Are any ĥt t negative?

(iii) Use the ĥt from part (ii) to estimate (12.47) by weighted least squares (as in Section 8.4). Compare your estimate of βt with that in equation. Test H0: βt = 0 and compare the outcome when OLS is used.

(iv) Now, estimate (12.47) by WLS, using the estimated ARCH model in (12.51) to obtain the ĥt . Does this change your findings from part (iii)?