2. Suppose the true model of return rt is rt = a + B₁f₁,t + B₂f2,t + &t where fit and f2,t are two factors, and & is white noise, a) Econometrician Mr. Omit is unaware of existence of factor f2,t and runs the following regression (1) rt = a + B₁f1,t + &t (2) Is ₁ from this regression (2) an unbiased estimator of B₁ in model (1)? Is it consistent? If there is any biased, what is the direction of the bias?

2. Suppose the true model of return rt is rt = a + B₁f₁,t + B₂f2,t + &t where fit and f2,t are two factors, and & is white noise, a) Econometrician Mr. Omit is unaware of existence of factor f2,t and runs the following regression (1) rt = a + B₁f1,t + &t (2) Is ₁ from this regression (2) an unbiased estimator of B₁ in model (1)? Is it consistent? If there is any biased, what is the direction of the bias?

Linear Algebra: A Modern Introduction

4th Edition

ISBN:9781285463247

Author:David Poole

Publisher:David Poole

Chapter2: Systems Of Linear Equations

Section2.4: Applications

Problem 2EQ: 2. Suppose that in Example 2.27, 400 units of food A, 500 units of B, and 600 units of C are placed...

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