Answered: 6. Describe the nature of omitted…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

6. Describe the nature of omitted variable bias as it relates to time series. In what cases
does controlling for trend variables solve the omitted variable bias?

7. Event studies.
a. Describe the six steps to conduct a financial event study.
b. What is the relationship between the efficient capital market hypothesis and the
use of financial event studies for causal inference?

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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