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1 Submission 1: Regression and Univariate Analysis 4

2.2 Submission 2: Volatility and Multivariate Analysis 6

3.3 Submission 3: Algorithmic Trading Strategy 7

3.3 References 9

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In every course of the WQU Master’s in Financial Engineering, students are required to
complete a group work project. Groups are geographically banded and consist of 3-5 students
who are able to communicate via a forum. All groups are given the same submission topics
for their projects – topics designed to assess not only their understanding of the course
content but also their skills of analysis and application.

You are required to make three group work submissions during the Econometrics course.

Your research should favor authoritative, scholarly sources, and you must reference all
sources where relevant. Not only are you required to cite accurate and relevant facts, but you
should also present your own clear logic when linking and contextualizing these facts.

All submission dates are published on the learning platform. If you have any questions,
remember to post them on the “Questions for Faculty” forum.

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The aim of each submission can be summarized as follows:

● Submission 1 requires you to delve into regression and univariate analysis,

demonstrating your understanding of basic statistics and R code.

● Submission 2 requires you to demonstrate your understanding of volatility and

multivariate analysis by investigating and analyzing a particular stock return and
foreign exchange trading.

● Submission 3 allows you to design an algorithmic trading in R.

The sections below provide the details you’ll need to complete these submissions. Good luck!

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Download JP Morgan stock historical prices from Yahoo Finance
Period: February 1, 2018 – December 30, 2018
Frequency: Daily
Price considered in the analysis: Close price adjusted for dividends and splits

1. Calculate in R:

1.1. Average stock value

1.2. Stock volatility
1.3. Daily stock return

2. Calculate in Excel:

1.4. Average stock value

1.5. Stock volatility
1.6. Daily stock return
1.7. Show JP Morgan stock price evolution using a scatter plot
1.8. Add a trendline to the graph (trendline options – linear)

1. Implement a two-variable regression in R

Explained variable: JP Morgan stock (adjusted close price)

Explanatory variable: S&P500

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Period: February 1, 2018 – December 30, 2018
Frequency: Daily

2. Implement a two-variable regression in Excel using LINEST function and Analysis

ToolPak

Use the same variables (JP Morgan stock and S&P500).

1. Forecast S&P/Case-Shiller U.S. National Home Price Index using an ARMA model.

Data source: https://fred.stlouisfed.org/series/CSUSHPINSA

Period considered in the analysis: January 1978 – latest data
Frequency: monthly data

1 Implement the Augmented Dickey-Fuller Test for checking the existence of a unit
root in Case-Shiller Index series

2 Implement an ARIMA(p,d,q) model. Determine p, d, q using Information Criterion or

Box-Jenkins methodology. Comment results

3 Forecast the future evolution of Case-Shiller Index using the ARMA model. Test
model using in-sample forecasts

4 Suggest exogenous variables that can improve forecasts

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Forecast Apple daily stock return using a GARCH model.

Source: Yahoo Finance

1 Select GARCH model (ARCH, GARCH-M, IGARCH, EGARCH, TARCH, multivariate

GARCH etc). Explain your choice.

2 Forecast next period daily return (t+1) using the chosen model. Select the timeframe
in the analysis. Provide charts and comments.

You can choose any currency pair you want.

You calculate the equilibrium FX for your local currency.

1 Indicate economic theories and models for calculating equilibrium FX.

2 Indicate macroeconomic variables used for calculating equilibrium FX.

3 Explain the connection between linear regression and Vector Error Correction (VEC).

4 Calculate equilibrium FX using VEC. You can use the Behavioural Equilibrium
Exchange Rate (BEER) approach. Comment results.

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Design your own algorithmic trading strategy in R.

Number of assets in the strategy: one or more assets

Type of asset: you select it (stock, commodity, FX, crypto etc)
Timeframe: you select it
Coding language: R; you can also use Excel for basic calculations and testing
Model: regression, ARMA, GARCH, VAR, VEC or any other quantitative model you know. You
can combine model with technical analysis indicators (MA, MACD, Bollinger bands etc) as in
Module 7 examples. You can also use machine learning algorithm (though it is not
compulsory).

You can use Module 7 examples or models from previous modules.

1 Explain the algorithm step by step

2 Provide R code and/or Excel calculations

3 Provide charts

4 Calculate returns, cumulative returns, standard deviation and forecasts

5 Indicate research papers or books on this topic

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 1 Indicate ways for improving the previous algorithmic trading strategy

2 Indicate research papers or books on the topic

Write up all the results from the analyses required in this project into a well-structured
formal report with introduction, comments, code, and conclusion sections.

The group work project should contain:

• R or Python code (or both coding languages)

• Excel (not compulsory)
• docx, pdf, xlsx or txt file with comments, charts, results, and conclusion. (You can also
use Open Office if you do not have Microsoft Office.)

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Berlinger, E. et al. Mastering R for Quantitative Finance. Packt Publishing.
Chan, E.P. Quantitative Trading. Wiley Trading.
Daroczi G. et al. Introduction to R for Quantitative Finance. Packt Publishing.
Greene, W. (2000). Econometric Analysis, Prentice-Hall, NY.
Gujarati, D. (2004). Basic Econometrics, McGraw-Hill.
Halls-Moore, M. L. (2017). Successful Algorithmic Trading.
Halls-Moore, M.L. (2017). Advanced Algorithmic Trading. Part III Time Series Analysis.
Jeet P. and Vats P. Learning Quantitative Finance with R. Packt Publishing.
McNeil, A. J. et al. Quantitative Risk Management. Princeton University Press.
Ojeda et al. Practical Data Science Cookbook, Packt Publishing.
Scott, M. et al. (2013). Financial Risk Modelling and Portfolio Optimization with R. Wiley.

Ahoniemi K. (2006). Modeling and Forecasting Implied Volatility – an Econometric Analysis

of the VIX Index, Helsinki Center of Economic Research, Discussion Paper.
Forecasting with ARMA Models, University of Leicester Courses.
Dong K. (2015). Liquidity Prediction in Limit Order Book Markets, University of Liverpool.
Guerrón-Quintana P. and Zhong M. (2017). Macroeconomic Forecasting in Times of Crises.
Federal Reserve Board, Washington D.C., Staff working paper.
Iqbal M. and Naveed A. (2016). Forecasting Inflation: Autoregressive Integrated Moving
Average Model, European Scientific Journal.
Monticini A. and Ravazzolo F. (2011). Forecasting the intraday market price of money. Norges
Bank Working Paper.
Xu, S. Y. Stock Price Forecasting Using Information from Yahoo Finance and Google Trend.

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Akcora C. G. et al. (2018). Bitcoin Risk Modeling with Blockchain Graphs.
Chu J. et al. (2017). GARCH Modelling of Cryptocurrencies. Journal of Risk and Financial
Management.
Daroczi G. et al. Introduction to R for Quantitative Finance. Packt Publishing, Chapter 1 Time
Series Analysis, pages 7-26.
Ding J. (2018). Time Series Predictive Analysis of Bitcoin with ARMA-GARCH model in
Python and R.
Jeet P. and Vats P. Learning Quantitative Finance with R. Packt Publishing, Chapter 4: Time
Series Modeling, pages 96-125.
Jiang, W. (2012). Using the GARCH model to analyse and predict the different stock markets.
Hultman, H. (2018). Volatility Forecasting.
Letra, I. (2016). What Drives Cryptocurrency Value? A Volatility and Predictability Analysis.
Master Thesis.
Rossi, E. (2004). Lecture notes on GARCH models. University of Pavia.
Tusell, F. (2011). Kalman Filtering in R, Journal of Statistical Software, Volume 39, Issue 2.
Welch, G. and Bishop G. (2006). An Introduction to Kalman Filter.
Wildi, M. (2013). An Introduction to State Space Models.

Granger C. W. J. (1992). Forecasting stock market prices: lessons for forecasters, International
Journal of Forecasting.
Juselius K. and Assenmacher K. (2015). Real exchange rate persistence: The case of the Swiss
franc-US dollar rate. Swiss National Bank Bank Working Paper.
Lack, C. (2006). Forecasting Swiss inflation using VAR models. Swiss National Bank
Economic Studies.
Mancini Griffoli et. al. (2014). Determinants of the Swiss Franc Real Exchange Rate. Swiss
National Bank Working Paper.
Mazzoni, T. (2010). Are Short Term Stock Asset Returns Predictable? An Extended Empirical
Analysis.

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Stephens, D. (2004). The equilibrium exchange rate according to PPP and UIP. Reserve Bank
of New Zeeland.

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