I. Module 1 Howework 3 [practice]: Meet the Data. Returns and Return Forecasts

This is a practice version of this assignment. You may attempt it two times, and it will grade your answers just as the actual assignment will. However, it is not graded for credit. 

This set of problems is a data handling and regression review, and it's also important background for the first week discussion. You'll need the data from class website, available here. This data comes from CRSP, which is the premier source for clean return data. The stock return is the return on the value-weighted portfolio of all US stocks -- NYSE+AMEX+NASDAQ. The Treasury bill return is the return for the year on 90 day Treasury bills. 

The number one problem with getting things like this to work is confusing the units of returns and growth rates. Make very sure you know whether you're using net returns , numbers like 0.1; when you're using gross returns , numbers like 1.1, when you're using percentages, numbers like 10, and when you're using log or continuously compounded returns, also numbers like 0.1.

It is possible to do this in excel, but it's much easier in any matrix programming language such as Matlab, Julia, Python, Octave, R, etc.