Question 10.30

10.30 Stocks and bonds.

How is the flow of investors’ money into stock mutual funds related to the flow of money into bond mutual funds? Table 10.4 shows the net new money flowing into stock and bond mutual funds in the years 1984 to 2013, in millions of dollars.13 “Net” means that funds flowing out are subtracted from those flowing in. If more money leaves than arrives, the net flow will be negative.

flow

  1. Make a scatterplot with cash flow into stock funds as the explanatory variable. Find the least-squares line for predicting net bond investments from net stock investments. What do the data suggest?
  2. Is there statistically significant evidence that there is some straight-line relationship between the flows of cash into bond funds and stock funds? (State hypotheses, give a test statistic and its -value, and state your conclusion.)
  3. Generate a plot of the residuals versus year. State any unusual patterns you see in this plot.
  4. Given the 2008 financial crisis and its lingering effects, remove the data for the years after 2007 and refit the remaining years. Is there statistically significant evidence of a straight-line relationship?
  5. Compare the least-squares regression lines and regression standard errors using all the years and using only the years before 2008.
  6. How would you report these results in a paper? In other words, how would you handle the difference in relationship before and after 2008?