Table 7 following shows the autocorrelations of the residuals from an AR(1) model fit to the changes in the gross profit margin (GPM) of The Home Depot, Inc.
TABLE 7 Autocorrelations of the Residuals from Estimating the Regression ÎGPM t = 0.0006 0.33301 ÎGPM t 1 + ε t 1Q:1992-4Q:2001 (40 Observations)
Lag……………………………Autocorrelation
1………………………………0.1106
2………………………………0.5981
3………………………………0.1525
4………………………………0.8496
5………………………………0.1099
Table 8 shows the output from a regression on changes in the GPM for Home Depot, where we have changed the specification of the AR regression.
TABLE 8 Change in Gross Profit Margin for Home Depot 1Q:1992-4Q:2001
Regression Statistics
R-squared……………………….0.9155
Standard error…………………..0.0057
Observations………………………..40
Durbin-Watson………………..2.6464
A. Identify the change that was made to the regression model.
B. Discuss the rationale for changing the regression specification.
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