Answer ALL questions
- Download the daily data series from DataStream for the period between 1st January 2019 and 31st December 2020 for the following:
- the share price from a company that has been randomly assigned to you,
(you will be provided with the name of the company assigned to you in the ‘Assessments’ folder in Introduction to Financial Econometrics site on DUO.)
- the S&P 500 Index (proxy for the market portfolio), and
- the U.S. 3-Month Treasury Bill (proxy for the risk-free rate of return).
Transform the share and index prices into returns, plot the returns data, report the sample statistics, and examine whether the returns are normally distributed.
- Carry out a test for stationarity in your company return and the market return. Carefully explain the test procedure and the importance of your results.
- Identify an appropriate univariate time-series model for your company’s return. Comment on the procedure adopted and pay particular attention to the identification, estimation and diagnostic stages of the modelling process.
- In finance it is customary to explain the changes in the excess return on an asset as a linear function of the excess return on the market portfolio, i.e.,
where Rt is the excess return on a stock (with respect to the risk-free rate), RMt is the excess return on a market index (with respect to the risk-free rate).
- Estimate the beta value of your company using the model described above and check the adequacy of the model. (20 marks)
- Construct an appropriate dummy variable and estimate a multiple regression model to investigate whether the spread of COVID-19 (which was formally recognised as a pandemic by the World Health Organization (WHO) on 11 March 2020) has had an impact on your company’s return and its beta. (20 marks)
All results should be properly tabulated in the main body of the assignment along with any diagrams you deem appropriate. You should not include the raw PcGive output. This should be reformulated into your own tables. Keep your answers as precise and concise as possible. You should properly reference any relevant econometric literature (theoretical and applied) referred to in the text.
You should include the raw data and return series for the first and last months in the sample (i.e. January 2019 AND December 2020) in an appendix. Please do not include the full data set.
Overall word limit: 1500 words
Your completed assignment must be uploaded to DUO
no later than 12:00 midday on 27 April 2021.
A penalty will be applied for work uploaded after 12:00 midday as detailed in the Programme Handbook. You must leave sufficient time to fully complete the upload process before the deadline and check that you have received a receipt. At peak periods, it can take up to 30 minutes for a receipt to be generated.
Assignments should be typed, using 1.5 spacing and an easy-to-read 12-point font. Assignments and dissertations/business projects must not exceed the word count indicated in the module handbook/assessment brief.
The word count should:
- Include all the text, including title, preface, introduction, in-text citations, quotations, footnotes and any other items not specifically excluded below.
- Exclude diagrams, tables (including tables/lists of contents and figures), equations, executive summary/abstract, acknowledgements, declaration, bibliography/list of references and appendices. However, it is not appropriate to use diagrams or tables merely as a way of circumventing the word limit. If a student uses a table or figure as a means of presenting his/her own words, then this is included in the word count.
Examiners will stop reading once the word limit has been reached, and work beyond this point will not be assessed. Checks of word counts will be carried out on submitted work, including any assignments or dissertations/business projects that appear to be clearly over-length. Checks may take place manually and/or with the aid of the word count provided via an electronic submission. Where a student has intentionally misrepresented their word count, the School may treat this as an offence under Section IV of the General Regulations of the University. Extreme cases may be viewed as dishonest practice under Section IV, 5 (a) (x) of the General Regulations.
Very occasionally it may be appropriate to present, in an appendix, material which does not properly belong in the main body of the assessment but which some students wish to provide for the sake of completeness. Any appendices will not have a role in the assessment – examiners are under no obligation to read appendices and they do not form part of the word count. Material that students wish to be assessed should always be included in the main body of the text.
Guidance on referencing can be found in the programme handbook and on DUO.
Performance in the summative assessment for this module is judged against the following criteria:
- Relevance to question(s)
- Organisation, structure and presentation
- Depth of understanding
- Analysis and discussion
- Use of sources and referencing
- Overall conclusions
PLAGIARISM AND COLLUSION
Students suspected of plagiarism, either of published work or the work of other students, or of collusion will be dealt with according to School and University guidelines.
END OF ASSESSMENT