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Econ334 Assignment s1 2013
Econ334 Assignment s1 2013
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Interpret and discuss your results. Conduct a test for the validity of the CAPM. What
do you find?
(5 marks)
b. Conduct the basic diagnostic tests on the estimated model, i.e. autocorrelation,
heteroskedasticity, non-normality, misspecification of functional form. Comment on
your results and suggest remedies for problems you encounter (you do not need to
carry these remedies out). (4 marks)
c. Estimate an alternative model based on the Fama-French factors:
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Interpret and discuss your results. Conduct a test for the validity of the CAPM. What
do you find? (5 marks)
d. Conduct the basic diagnostic tests on the estimated model, i.e. autocorrelation,
heteroskedasticity, non-normality, misspecification of functional form. Comment on
your findings. (2 marks)
e. Which model do you prefer CRR or Fama-French and why? (4 marks)
Part B:
The Eviews workfile ford_daily.wf1 located under Assignment heading on iLearn
contains daily share prices for Ford from 3/1/2011 to 4/4/2013.
Question 1: (20 marks in total)
a. Plot and discuss a graph of the share price.
(1 marks)
b. Conduct ADF and KPSS unit-root tests on the price series. Be careful to properly state
the null and alternative hypotheses for the two tests. Comment on your findings.
(2 marks)
c. Generate a new variable for the daily continuously compounded returns of Ford.
Present summary statistics and comment.
(1 marks)
d. Conduct ADF and KPSS unit-root tests on the returns. Be careful to properly state the
null and alternative hypotheses for the two tests. Comment on your findings.
(2 marks)
e. Choose an optimal (, ) model for the returns based on the AIC criteria up to
a maximum of (4,4) order. You may use the automatic procedure or you may
undertake this manually. Present a table highlighting the minimised AIC value.
(4 marks)
f. Estimate the model selected by the AIC criteria. Interpret the output and
comment.
(2 marks)
g. Conduct the basic diagnostic tests on the estimated model, i.e. autocorrelation,
heteroskedasticity, non-normality, misspecification of functional form. Comment on
your findings.
(2 marks)
h. Re-estimate the model from (e) by adding a (1,1) specification. Comment on
the output. Provide a graph of the estimated conditional standard deviation and
comment on it.
(6 marks)