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Investigate the order of integration of the series uks

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Reference no: EM132144199

Applied Finance with E-views Assignment -

Answer ALL sub-questions -

Question 1 - The Excel workfile Resit Coursework contains weekly data on two time series, namely, the FTSE 100 stock Index, UKS, and FTSE 100 Index futures, UKF. The period starts on 3 January 2003 and ends on 26 May 2017 (752 observations). Source: Bloomberg.

We expect this two series to be cointegrated given that market forces arising from no-arbitrage conditions suggest that there should be an equilibrium relationship between them. Spot and future prices may be expected to be cointegrated since they are obviously prices for the same asset at different points in time, and hence will be affected in very similar ways by given pieces of information. Answer the following questions:

(a) Investigate the order of Integration of the series UKS.

(b) Investigate whether the series UKS is a Random Walk (RW1) or a Martingale (RW3).

(c) Assume both series UKS and UKF are I(1) and carry out an Engle-Granger cointegration test.

(d) Carry out the ECM (Error Correction Model) t test for cointegration for the series UKS and UKF.

(e) Use the log of UKF as dependent variable. Model the relationship between the UKF and UKS series comparing the Unrestricted ECM Method with the Three Step Engle-Yoo ECM Method.

Attachment:- Data.rar

Reference no: EM132144199

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