solution

 

. Practitioners and financial researchers have found evidence that information on trading volume (number of shares traded in a given period) can be useful for investment decisions. In this exercise, you will explore whether the trading volume of a stock has any predictable pattern. Specifically, consider the daily trading volume for shares of Home Depot, Inc. from January 1 to December 22, 2008.19 DATADATA

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HOMEDEPOT

(a) Make a time series plot of the trading volume time series. Describe any important features of the time series.

(b) Make a lagged time series plot of the trading volume time series. Does this plot suggest that an AR(1) model is appropriate

for this time series? Why or why not?

(c) Use software to fit a simple linear regression model using yt as the response variable and yt−1 as the explanatory variable.

Record the estimated regression equation.

(d) Use the fitted AR(1) model from part (c) to obtain a forecast for trading volume on December 23, 2008.