Monthly Closing Stock Prices, Adjusted for Dividends, Were Obtained for Boeing

Essay

Monthly closing stock prices, adjusted for dividends, were obtained for Boeing Corporation from January 2006 through August 2008 (closing price on the first trading day of the month). The time series graph of these data is shown below. a. Below are the results of fitting a third-order autoregressive model, AR (3). Write out the model. Are the second and third lagged values significant? Explain.
Final Estimates of Parameters
Type Coef SE Coef T P
Lag 1 0.9247 0.1898 4.87 0.000
Lag 2 0.0429 0.2603 0.16 0.870
Lag 3 -0.0764 0.1959 -0.39 0.699
Constant 8.362 1.223 6.84 0.000
b. Below are the results of fitting a first-order autoregressive model, AR (1). Write out the model. Is this model typical for stock price data? Explain.
Final Estimates of Parameters
Type Coef SE Coef T P
Lag 1 0.9098 0.0969 9.39 0.000
Constant 6.835 1.207 5.67 0.000