Assignment #2

We will continue to use the data file eaef01.dta. So open up Stata and

load the DO file which we created during the lab class #1, to which we are now going to add some

additional instructions.

1. Calculate the correlation between EARNINGS and S.

Now run a regression of

 EARNINGSi =α+ β Si +εi  (1)

(a) What is the interpretation of the coefficient on the S variable?

(b) Test the hypothesis β= 0.

(c) What is the TSS of the model?

(d) What is the p-value of the test undertaken in (b)

(e) Construct a 95% confidence interval for the coefficient on β.

(f) What is the error variance for this model?

(g) What is the relationship between the R2 from equation (1) and correlation between EARNINGS and S?

(i) Use the Test options in Stata to test the null hypotheses that the coefficient on

S  is 0.25 at the 5% significance level.

(k) Explain the meaning of R2 and F statistics.