Empirical Asset Pricing: Individual assignment

Coursework Briefing (individual, written)


Coursework information


Course Code ECON5069
Course Title Empirical Asset Pricing
Coursework format Individual assignment
Weighting 40.00%
Word limit 2000 words (+/- 10%)
Action to be taken if word limit is exceeded  



This assignment consists of two questions. You should answer both the questions. Question 1 is weighted at 40% and question 2 at 60%.

Question 1

The dataset ukstock.dta (available on your moodle page) contains monthly stock prices on 85 UK companies. Choose any three individual stocks from these 85 companies. Then, using the FTSE100 index as a proxy for the market portfolio and 3-month Treasury Bill for the risk-free rate, perform the following tests of the Sharpe-Lintner Capital Asset Pricing Model:


  • For a 9 year monthly period January 1986 to December 1994, regress excess return on each stock on the excess market return and perform tests with a size of 5% that the intercept is zero. Report all the estimates, t-statistics, and whether you reject the CAPM.




  • Repeat the same procedure for each stock for the full sample period Jan 1986. – Dec. 2006.

Report the estimates, t-statistics and whether you reject the CAPM in the full sample.





  • Combine all three stocks into a single equal-weighted portfolio and re-do the tests for the full sample and for the sub-sample. Report the estimates, t-statistics and whether you reject the CAPM for both the sample periods.





Question 2

Use the same UK Stocks dataset to answer this question. You are encouraged to go through the material in Lab 3 to answer this question.

Define initial portfolio formation period as 1986-1990 (60 months), portfolio estimation period as 1991-1995 (60 months) and portfolio testing period as 1996-2000 (60 months), respectively.

  • Following the Fama-Macbeth (1972) procedure (detailed in Lab3, section 3), construct 20 portfolios for the period 1996-2006. Plot estimated betas and standard deviations of first, tenth and twentieth portfolio. Interpret these graphs.





  • Estimate the Security Characteristic Line on this constructed portfolios and test for the validity of CAPM using the Least Square approach (LS). Report all estimates, statistics and whether you reject CAPM in the data.





  • Test for the validity of CAPM using the SURE approach and the GMM approach. Report all estimates, statistics and whether you reject CAPM in the data.





Intended Learning Outcomes being assessed

Critically assess and work with asset pricing models including;

  1. Sharpe-Lintner capital asset pricing model
  2. Arbitrage pricing theory
  3. Stochastic discount factor model
  4. perform modern econometric methods
  5. Multivariate regression
  6. Seemingly unrelated regression
  7. work with datasets and perform empirical testing
  8. use STATA as a programming tool

Assessment criteria

This assignment tests students’ understanding of CAPM theory and its empirical testing using econometric methods. The use of STATA is necessary for this assignment.

  1. Students need to answer all subquestions for each of the two question, and always discuss their work. For example, it is not enough to show a table of regression results or statistical test results. Rather, students need to discuss (as appropriate) what the results mean in both qualitative and quantitative terms, what might be the problems with the estimation (if the question as for this) while providing examples of such problems, why a particular statistical test might be needed, what is the null hypothesis in the test, what is the interpretation of the test results.


  1. In question 1, you are required to accurately create an equally weighted portfolio of three chosen stocks where the null hypotheses has to be carefully constructed and articulated. Excellent answers would interpret results. Good answers would also plot fitted regressions for each of the stocks and compare with the portfolio.



  1. In question 2, students should exhibit a good understanding of the three main econometric methods, Least Squares, Generalized Method of Moments and Seemingly Unrelated Regression Estimation. Good answers will plot portfolio betas and standard deviation and discuss relevant characteristics. Choosing which ones to plot needs some introspection and grades would be based on how insightful the analysis and discussion is done. Top grades will be awarded only if there is a comparison of the results achieved using the three methods.


Feedback method

Individual feedback will normally be provided via Moodle.  Generic (class-level) feedback and grade profiles will normally be posted on Moodle.

Students can use academic staff office hours for additional feedback on your work.


Preparing your coursework

Document creation

  1. Please use this file naming convention:   e.g.

7299019_ACCFIN4029_1.  If there is no question choice, use 1 as the default.

  1. The file type must be .doc, .doxc, .xls, .xlsx or .pdf.
  2. Include your student ID in your document, ideally in the header on each page with the course code and title, e.g. 2489545_ACCFIN1003_Finance1.
  3. The maximum file size limit on Moodle is 230MB



You won’t be penalised if you don’t follow this good practice on formatting, but it will help your markers.

  • Use a Sans Serif font in black, e.g. Arial, Avant Garde, Calibri, Helvetica and Geneva.
  • Use font size 12.
  • Use 1.5 or double line spacing.
  • Align your text to the left margin.
  • Add page numbers.


Referencing and bibliography

You should reference your sources appropriately and list these in a bibliography.  The bibliography is excluded from your word limit.  You should use the ‘Harvard’ referencing system, as detailed below for written coursework.

In the text, use the following referencing conventions:

  • Smith (1999) argues that…. or
  • It has been argued that……. (Smith, 1999).
  • If you use a direct quote, use quotation marks and cite the page number as well as the author and date, i.e. (Smith, 1999, p. 4).
  • If you have two items by the same author in the same year, refer to one as ‘a’ and the other as ‘b’, i.e. Smith (1999a) and Smith (1999b).


For more information, please refer to the University Library webpage.

Student conduct


You must adhere to the University’s rules regarding plagiarism which are based on the premise that ‘all work submitted by students for assessment is accepted on the understanding that it is the student’s own effort’.  Penalties for plagiarism include an award of an H and a record of this being held on your student record.  More specifically, you must avoid plagiarism in the following forms:

  • Copying from sources without ‘formal and proper acknowledgement’
  • Inappropriate collaboration – working with other students to produce individual coursework or copying work produced by another student
  • Submitting work which you have obtained from another source, e.g. an essay mill
  • Self-plagiarism – basing coursework on work that has already been submitted for assessment purposes.


For advice and more information, please consult:



Note that your coursework will be processed through Turnitin for similarity checking.  You can submit a draft of your coursework to Turnitin before submitting your final copy.  You will find information about using Turnitin in the Student Information Point Moodle.

Submitting your coursework

You must submit in accordance with the stated time and date on page 1.  See below for information if you are unable to do so.

Finalising your document

Please follow the steps listed below:

  1. Check your spelling and grammar using the inbuilt tool on your device. You will not be penalised for grammatical and spelling errors but we recommend that you take the opportunity to correct them.
  2. Check your file name (see above).
  3. Check that you have used an accepted file type (see above).
  4. Do not include your name in the file name or the document to support anonymous marking.


Uploading your document to Moodle

  1. You will upload your document to the designated section of the Moodle course, which will be clearly signposted.
  2. Try to upload your document at least 30 minutes before the deadline (page 1) in case you encounter any technical issues. You will be able to resubmit the document as often as you like until the submission deadline.
  3. Complete the Declaration of Originality (see below).


Declaration of Originality

When you upload your coursework on Moodle, you will be required to select a checkbox to confirm that you agree with the University’s Declaration of Originality which applies to all academic work, as follows.

I confirm that this assignment is my own work and I have:

  • Read and understood the guidance on plagiarism provided on the Student Information Point Moodle course including the University of Glasgow Statement on Plagiarism.
  • Clearly referenced, in both the text and the bibliography or references, all sources used in the work.
  • Fully referenced (including page numbers) and used inverted commas for all text quoted from books, journals, web etc.
  • Provided the sources for all tables, figures, data etc. that are not my own work.
  • Not made use of the work of any other student(s) past or present without acknowledgement. This includes any of my own work, that has previously, or concurrently, been submitted for assessment, either at this or any other institution, including school.
  • Not sought or used the services of any professional agencies to produce this work.
  • In addition, I understand that any false claim in respect of this work will result in disciplinary action in accordance with University regulations.


Extensions and non-submission with good cause

Please refer to the Student Information Point Moodle for relevant information.

Late submission penalties

In the absence of good cause, late submission penalties will be applied as explained in Student Information Point Moodle.


If you have any questions about this coursework briefing, please read it carefully again to ensure you fully understand it.  If you still have questions, please post these on the Moodle Discussion Forum.

Personal questions only can be sent to [delete as necessary]: