Q1)

There has been a substantial body of empirical work on the role of the financial system in promoting economic growth. For example, King and Levine (1993) estimate cross-sectional growth regressions (using data from a number of countries) of the form:

gi = a + fi +  1x1,i + ... + mxm,i + ui

where

gi = growth in per capita GDP for country i

fi = financial development indicator (ratio of credit to GDP) for country i x1,i , ... , xm,i   = control variables for country i

ui = error/disturbance term for country i

The control variables include per capita GDP, secondary school enrollment, ratio of     government consumption to GDP, inflation and openness (=ratio of imports+exports to GDP).

References

King, R.G. and Levine, R. (1993). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics 108, 717-737.

Levine, R. (1997). Financial development and economic growth: views and agenda. Journal of Economic Literature 35, 688-726.

Levine, R. (2004). Finance and growth: theory and evidence. Forthcoming in Agion, P. and Durlaf, S. Handbook of Economic Growth. Elsevier.

The file ‘data.csv’ contains cross-sectional data for 37 countries for the following variables:

i-subscripts on the above variables refer to country i.

You have following tasks:

a) estimate the two cross-sectional regression models, as follows: I:  dlypci = 1 + 2crediti + ui

II: dlypci = 1 + 2lypc80i + 3lsecedi + 4govgdpi + 5openi + 6crediti + ui b) Visualise the above models

Solution

Estimation of Model I:

Q2) Write Python code to download historical data for S&P500 and Facebook from an online repository and plot the respective indices as a time series, and their respective returns.

Q3) Estimate a regression analysis of CAPM for Facebook. Is there any prior literature on the empirical evidence of CAPM? Is your result consistent with them?

Solution