(Requires Chapter 8)When Using Panel Data and in the Presence

question 36

Multiple Choice

(Requires Chapter 8) When using panel data and in the presence of endogenous regressors

• A)the TSLS does not exist.
• B)you do not have to worry about the validity of instruments, since there are so many fixed effects.
• C)the OLS estimator is consistent.
• D)application of the TSLS estimator is straightforward if you use two time periods and difference the data.

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Definitions:

Required Rate of Return

The minimum annual percentage return an investor expects to achieve from an investment, considering its risk.

Market Risk Premium

The additional return investors expect to receive from an equity investment over the risk-free rate, compensating for taking on higher risk.

Negative Beta

A measure indicating the inverse relationship between the return of a stock and the return of the overall market.

SML

Security Market Line, a graphical representation of the Capital Asset Pricing Model (CAPM) showing the relationship between the expected return of a security and its risk.