Part A. Critical Reading (15% to the course assessment).

Choose one of the following two articles and write a report of your selected one. The report should provide a summary on the research. The focus should be on describing and commenting on the econometric models and analyses used in the study. The common points are how the data is treated before testing, why the models are chosen, what are the relative advantages of the used models, and how these advantages are shown in the results, etc.). To improve your performance, you can

make some critical comments on the testing methodology issues.

Word length should be about 500 to 1000 words.

Morck R., A. Shleifer and R. W. Vishny (1989), `Alternative Mechanisms for Corporate Control ’, American Economic Review 79, no. 4, 842-852.

Habibullah and Azman-Saini (2006), “Testing liquidity constraints in 10 Asian             developing countries: an error-correction model approach”, Applied Economics, 38, 2535-2543.

Part B Practice panel data and binary regressions (15% contribution to the course assessment) (Head start codes of SAS or R provided in Stream)

(Panel data practice) (10% contribution to the course assessment)

Step 1

Download the Stream provided data (Assignment2_data.xlsx) of Fama-French 5 Factors for the 4    regions (European, Japanese, Asia Pacific and North American) and comment on the data structure noticing the two indicators for time series and cross section.

Step 2

Applying the model (Mkt_RF =a+b1*SMB+b2*HML+b3*RMW+b4*CMA) to do the following

operations:

i) Run OLS time series regression for each individual region;

ii) Run OLS regression using the panel data (of all 4 regions, in pooled regression);

iii) Try various panel data fixing models (fixing region, fixing time, fixing both, random region, and random  time).

Step 3

Write a short report of the above regression results. These are the questions for you to consider:

1)   Is there any relation between the dependent variable and each independent variable?

2)   Is the identified relation(s) based upon certain conditions in terms of regions or times?