The data set “financial_data_ps3.dta” contains daily information on the closing price of the S&P 500 stock, gold, bitcoin, as well as the interest rate on the U.S. 10-year Treasury note since January 2015 to October 2020. These data were retrieved from Yahoo finance.

Financial Markets and COVID-19
The data set “financial_data_ps3.dta” contains daily information on the closing price of the S&P 500 stock,
gold, bitcoin, as well as the interest rate on the U.S. 10-year Treasury note since January 2015 to October
2020. These data were retrieved from Yahoo finance. The following table defines the variables in this data
set:
Variable Variable name in Stata Description
Date date Year-month-day
Time trend timetrend Numerical variable that goes from 1 to T
Closing price of S&P 500 stock sp500_close Closing price in US dollars
Closing price of gold gold_close Closing price in US dollars
Closing price of bitcoin bitcoin_close Closing price in US dollars
Interest rate on the U.S. 10-year
Treasury note
treasury_close Interest rate
Before you begin, however, please read through these important instructions:
• Be sure to write your name on this page! Please submit your assignment by Midnight (CA time)
Friday December 11th. (Note: You will lose a full grade point (e.g., from A- to B-) for turning in
your assignment one day late. No submissions will be accepted after Saturday December 12th.)
The submission process involves two steps, both of which are required to receive full credit for the
Problem Set:
o Part 1: Upload your Stata do-file to the Problem Set 3 Assignment on Canvas. You will
lose a full grade point if you do not submit the Stata do file.
o Part 2: Upload your PDF via Gradescope. If you have any questions about how to upload
via Gradescope, please consult this helpful page:
https://help.gradescope.com/article/ccbpppziu9-student-submit-work
• You are permitted to discuss the assignment with your classmates, but all estimation and writeup should be done independently. Assignments like this are designed for you to generate your
own ideas, and this should be reflected in your submitted work. We will be looking out for
evidence that each student is submitting their own work and not that of classmates.
J. Edward Taylor Fall 2020
• Enter your answers onto this document in the space provided. More than enough space is
provided, so do not worry about filling up the space! Focus more on the quality of your
responses than on the quantity of words used in the responses.
• You have a few options for how to enter your responses. This PDF is fillable, which means
you can type out your responses in the boxes provided. (Note: It is highly recommended that
you print your final document as a PDF file and read over your submission to make sure
everything is as you want it before uploading to Gradescope.) You can also handwrite your
responses on a printed copy of the document, scan that document as a PDF, and upload the
submission. Alternatively, you could handwrite answers using a tablet. If you choose to
handwrite your responses, be sure to keep your handwriting within the boxes provided for each
question. Answers outside of the boxes are liable to be missed by Gradescope, resulting in
unnecessary points lost.
• When typing out equations, you may use lower-case letters in parentheses instead of subscripts.
For example, Y(i) is accepted in place of . If you are handwriting your responses, please use
subscripts for full credit.
• In order to open “financial_data_ps3.dta”, go to “File – Open”, and locate your local drives
where this dtafile is saved.
o For Windows users, your local drives should be under “This PC” – “C on {your
computername}.”
o For Mac users, “This PC” – “[folder name] on [your computer name].” The folder is
theone which you set up first in “Preference – General tab” in Microsoft Remote
Desktop Appwhen you install Stata. You should move “financial_data_ps3.dta” to this
folder.
• All the Stata commands have useful documentation with examples. If you want to see these
documents, you can type “help [command name].”
o For example, if you type “help reg” in Stata, a new window will be open and provide
a detailed information on syntax, options, and examples for reg command.
J. Edward Taylor Fall 2020
1. [5 points] The S&P 500 is an index of stock prices for the largest corporations in America. It includes
all the FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks, but it also includes “old economy”
stocks like United Airlines, Hilton Hotels, and Carnival Cruises. Estimate an OLS regression to predict
the S&P 500 price at close of each trading day, based on its close price the previous day and a time
trend. That is, use the model to capture basic dynamics that is Professor Taylor’s preferred starting
model (see ppt for CH 9). Report your results. Hint: before running the regression, make sure to declare
the data to be a time series by typing tsset timetrend in Stata.1
Variables Estimated
Coefficient
Standard Error t-statistic 95% Confidence Int