Using Simple Regression Model to Explain the Relationship Between 3-Month T-Bill Rate and Dow-Jones Index

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Submitted By tsai18
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Using the simple regression model to explain the relationship between 3-Month T-bill rate and Dow Jones Index

Index 1. Introduction………………………………………………3

2. Modeling the relationship between the 3-Month T-bill rates and Dow Jones Index (First Model)……………………3

3. Hypothesis and Testing…………………………………...4

4. Empirical Analysis………………………………………...5

5. Further Comparison………………………………………5 6. Conclusion…………………………………………………7

7. Appendix……………………………………………………8

8. Reference…………………………………………………..10

1. Introduction

The 3-month T-bill rates and Dow Jones index are really close to the whole economic environment; the 3-month T-Bill rates are the preeminent default-risk-free rates in the US money market that is often used by researchers to proxy the risk-free asset whose existence is assumed by much conventional finance theory. Given their importance and visibility, it is not surprising that these interest rates has been studied extensively in economic and finance. Dow Jones Index, undoubtedly, is one of the most important economic indicators of the global financial market, This paper investigates the relationship between these two important economic data. In order to cover the business circle, the data which I choose is from 2001/01/01-2010/12/31, including the subprime lending crisis period. I use SAS and excel to get the information which indicates the relationship between these two representing data.

2. Modeling the relationship between the 3-Month T-bill rates and Dow Jones Index (First Model)

In order to present the relationship between the 3-Month T-Bill rates and Dow Jones index by our SAS output result, I constructed a single regression model:
Y=β0+β1X
(β0 = the intercept of 3-Month T-bill rate)
(β1 = the slope of Dow Jones Index)

3-Month T-Bill rate=-0.04883+0.00000670*Dow Jones Index

This means that when the Dow Jones…...

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