Reference no: EM133152124
BUA4004 Statistics for Business and Finance - La Trobe University
You have been asked by your client to recommend which of two available stocks will perform better over time, relative to risk. In this assignment, you examine the relationship between risk and return of two stocks over time and present your findings as a formal written report (detailing your calculations and findings).
The objectives of this assignment are to
1. (i) let you practise quantitative analysis commonly undertaken by business-degree graduates at work;
2. (ii) learn how and when to use different quantitative methods covered in the subject.
This is a teamwork assignment, worth 15% of the total assessment. This assignment is based on topics including; Sampling and Estimation, Hypothesis Testing, and Regression Analysis.
Variables and data sources
PNSDQ = NASDAQ stock exchange's composite price index (NSDQ)
This variable is measured in US dollars. You will use it as a market portfolio, and will hence use the return generated from this variable (RNSDQ) as the market return RM = RNSDQ.
Task 1: Download and prepare the data for analysis
* First, choose the leader of your team.
* Second, using the table below, identify the Data Group by the team leader's student ID number. (For example, if the team leader's student ID number is 20430066, then the team's Data Group is A.)
Task 2: Hypothesis testing of means and variance equality
(i) Perform and report the Jarque-Berra test of normally distributed returns for each of the two stocks, RTSLA and RPFE. Given your test results, what do you infer about the distribution of returns to each company's stock?
(ii) Test the hypothesis that the average return on TSLA is different from 3 percent at the 5% level of significance. Make sure you present the test step by step leading to the conclusion, explaining which test statistic you use to perform this hypothesis test and why. [Hint: Hypothesis test about a population mean]
(iii) Before investing in one of the two stocks, we would like to compare the risks associated with the two stocks. For this comparison, perform and present an appropriate hypothesis test at the 5% level of significance, and interpret your result. [Hint: Hypothesis test about homoskedasticity]
(iv) We would also like to check whether both stocks have the same return on average. Using the confidence interval approach, perform and present an appropriate hypothesis test at the 5% level of significance, and interpret your result. Which stock would you prefer and why? [Hint: Hypothesis test about two population means. Zero mark if you test using an approach other than the confidence interval approach.]
Task 3: Regression analysis and inference
In this last part of the assignment, your team will focus on the preferred stock chosen in the last question above.
(i) First, compute the excess market return, i.e. X = RM - RF. Then, compute the excess return on your team's preferred stock, i.e. Y = Rpreferred company stock - RF. [This is assessed in the Excel file only. Do not include in the PDF file.]
(ii) Estimate the Capital Asset Pricing (CAP) model by regressing the excess return on your preferred stock (Y) on the excess market return (X). Then, report your regression results in an equation form.
(iii) Give a regression interpretation of the estimated CAPM beta coeficient (i.e. slope coeficient). Additionally, what does the coeficient imply in terms of the stock's riskiness in comparison with the market? [In not more than a few sentences]
(iv) Interpret the 95% confidence interval for the slope coeficient. [In not more than a few sentences]
(v) Interpret the value of the coeficient of determination R2. [In not more than a few sentences]
(vi) Perform and report a hypothesis test to infer whether your preferred stock is an aggressive stock at the 5% level of significance.
(vii) One of the assumptions of the linear regression model is that random errors are normally distributed. Perform and report an appropriate hypothesis test to determine whether it is plausible to assume normally distributed errors.
Attachment:- Statistics for Business and Finance.rar