FIN5EME ECONOMETRIC METHODS- Assignment Problem

Reference no: EM132389405

Assignment : Econometric Methods FIN5EME

Question 1

a) Report the time plots and SACF of the time series in according to level series data (logRP, logRD, and logRE).

b) Based on these measures, provide a summary of the descriptive properties of these time series in relation to their main components, dependence structure, and stylized features of financial time series.

Question 2

a) Report time plots and SACF of the time series in first difference (ΔlogRP, ΔlogRD, and ΔlogRE).

Question 3

a) Find the best fitting ARMA models for ΔlogRP, ΔlogRD, and ΔlogRE, justifying your final chosen models with appropriate statistical measures or tests.

b) Using these models, generate dynamic (out-of-sample) forecasts for the next 12 month for ΔlogRP, ΔlogRD, and ΔlogRE. Evaluate the accuracy of the forecasts using the MAPE and Theil’s U.

Question 4

Conduct the ADF test for logRP, logRD, and logRE,; and determine whether they are I(2), or I(1), or I(0).

Question 5

Regardless of your test outcomes in Question 4, let us assume that all of these time series are of I(1).

a) Run the regression of logRP against logRD, and logRE (including the intercept term).

b) Conduct the test for cointegration using the ADF test.

c) Depending on the outcome of the test, interpret the long-run relationship implied by the regression results.

Question 6

Interpret the estimation results of the above short-run models, paying attention to

a) Speed of adjustments to long-run equilibrium (if logRP, logRD, and logRE are cointegrated);

b) Whether the past changes of RD, and/or RE have explanatory power (or predictive ability) for the current change of RP;

c) Whether the past changes of RP have explanatory power (or predictive ability) for the current change of RP.

Question 7

Provide a non-technical summary of your findings from Questions 1 to 6, in less than 200 words. Your discussion should include how the current stock return is affected by the past values of dividend changes and/or stock return, economically and statistically.

Reference no: EM132389405

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