Financial Econometrics
Assignment Brief
| Module Code and Title
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| Assignment Number & Title
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Assignment 2 |
| Assessment Type
(e.g. Presentation, Essay, Report etc.)
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Econometrics report |
| Weighting of assessment (%TMM) | 50% |
| Assessment Learning Outcomes | Demonstrate the skill of using Eviews for advanced econometrics models and tests
Demonstrate the ability to conduct advanced econometrics tests and interprete the results. Draw real life conclusion from more complex econometrics modelling and testing |
| Module Leader | Anh Nguyen |
| Internal Reviewer | Juliana Caicedo |
| External Examiner | Reda Lebcir |
| Completing Your Assignment
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| Requirements:
You must use Eviews software to complete this assignment. You need to submit both the Eviews file and the written report. The report needs to be typed and presentable. The report must address each of the tasks below. Do not restate the questions in your report. Your report has to be understandable as a stand-alone piece of work without referring to the Eviews file. You can include the graphs/ tables/ estimation results from Eviews to address the questions, but do not details the process of how you create them. The process will be visible in the Eviews file. You should reflect on the outcomes of the research and tests conducted and not on the operational actions.
In the Eview files, you need to save all the variables created, all the graphs, estimation outputs and hypothesis test results, with their names clearly identify the questions they address. Tables, graphs, figures, estimation outputs, etc. need to be clearly labelled.
If you do not submit the Eviews file, you will automatically lose 50% mark of all calculation tasks. Calculation tasks that are not visible in Eviews will also lose 50% mark automatically.
Tasks: Download the Excel files. Each of you will have a different set of data. Sheet 1 contains the monthly inflation rates of eleven countries. Sheet 2 the monthly historical price of S&P500 and other indices. Sheet 3 contains daily stock prices of eleven US companies, SMB and HML risk factor and US risk free rate. Note: all the Fama-French data are in percentages. Sheet 4 contains USD/GBP spot and forward exchange rates. All data are obtained from Eikon Refinitiv and Kenneth French’s website, which can be access here: https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
Each of you will be assigned one company, one index and the number of lags for VAR in question 5.
1. Employ the Box-Jenkins approach, identify the ARMA form of the assigned inflation rates following the steps below: a. Plot the correlogram of the time series. (2 marks) b. From the correlogram, propose three models AR, MA or ARMA that could potentially be suitable for this time series. Provide justification for the choices. (10 marks) c. Estimate all of the proposed models and compare their Akaike Information Criteria to identify the most suitable model for the assigned inflation rate. (15 marks) 2. a. Apply the Fama-French 3-factor model on the log return your assigned US company. The Fama-French 3-factor model has the following form: (1) (10 marks) Report your estimation results and comment on the significance levels of the estimated coefficients. Comment on the meaning and significance of all the factors. b. Is Fama-French a good model for the particular stock? Explain your answer with evidence from your computation. (5 marks) 3. Conduct the ARCH-LM test on the residuals of the estimation of model (1) in question 2. Report and comment on the result of the test. (5 marks) 4. a. Estimate the Fama-French 3-factor model with GARCH(1,1) on the company stock return. Comment on the estimated result regarding the magnitude and significance of the model. (10 marks) b. Discuss if introducing GARCH(1,1) for this model is appropriate. (5 marks) 5. Apply a bivariate VAR model to the monthly log return on S&P500 and the monthly log return on your given index. a. Report the optimal lag-length table. What are the optimal lag lengths according to different criteria? (3 marks) b. Estimate the VAR model with [the number of lags assigned to you] to the log monthly return on S&P500 and the log monthly return on your given index. Report the estimation results. Perform a test to examine if the return on your given index Granger-causes the return on your given index. Report and comment on the test results. (10 marks)
6. Regress the forward exchange rate on the spot exchange rate. Use the Engle-Granger approach to test for the cointegration between the spot exchange rate and the one-month forward exchange rate. What can you conclude about these two series? (15 marks)
7. After completing the above tasks, critically reflect on the experience you had by doing this task, addressing the challenges that you have faced, how would you overcome them I the future, how the above exercises can be applied to real life problems and how it will enhance your personal skills developing you as one of the potential tomorrow global leaders. (10 marks)
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| Is there a size limit?
No |
| What do I need to do to pass?
Threshold criteria i.e. achievement of the learning outcome at the pass/fail boundary
Be able to use Eviews and carry out the estimation and tests that are required. Present the correct results Submit the Eviews file along with the report.
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| How do I produce high quality work that merits a 70% or above grade?
Being able to use Eviews comfortably for the required tests and models. Demonstrate a good understanding of the models and tests Provide a good interpretation of the Eviews results, and explain the decision taken based on these econometrics results. Generate a well presented report which addresses carefully the requirements of the assignment. Submit the Eviews file along with the report.
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| How does assignment relate to what we are doing in the scheduled sessions?
The skills necessary to complete the assignment are practiced and discussed in the scheduled sessions.
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| How will I receive formative feedback for this assignment?
Formative feedback can be given once you start the assignment. Formative work needs to be emailed to me
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| Marks and Feedback
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| How will my assignment be marked? |
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Your assignment will be marked according to the threshold expectations above and the marking criteria below. You can use them to evaluate your own work and estimate your grade before you submit.
Marking Criteria Table
70%+ Excellent report, all aspects of brief addressed in full, insightful analysis and reflection throughout. Logical and insightful recommendations included which logically follow from the main body of the report. 60-69%: Very good report, most aspects of brief addressed in full, clear analysis and reflection throughout. A good level of insight demonstrated through the development of the recommendations which are clearly informed by the main body of the report. 50-59%: Generally, a good report, most aspects of brief addressed with evidence of analysis and reflection. Recommendations included which follow, but not always from the main body of the report. 45-49%: A marginally fail report, most aspects of brief addressed but with omissions. Evidence of limited analysis and reflection. 30-39%: Little evidence of reflection. Tasks are not adequately addressed with a largely descriptive approach adopted. Recommendations are underdeveloped, requiring further development. <44%: Very poor report with little of substance. Little evidence of reflection. Tasks are not adequately addressed
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Marking Criteria
| Issue | 80% -100% | 70%-79% | Grade 60%-69% | 50%-59% | 40-49% | 0- |
| Relevance to assignment brief | Assignment’s aims and
themes are integral to the assignment. |
Clear focus on the
themes of the assignment. |
Mainly focused on
the themes of the assignment. |
Some of the writing
is focused on the themes of the assignment. |
Not relevant attempt to
address the themes of the assignment. |
Makes no attempt to
address the themes of the assignment. |
| Extent of evaluation | Evaluation within
assignment rigorous and appropriate. |
Good clear evidence
of evaluation carried out within assignment. |
Evaluation
reasonably well carried out |
Some attempt at
evaluation within assignment. |
Not relevant attempt at
evaluation within assignment |
No attempt at
evaluation within assignment |
| Quality of reasoning | Analytical and clear
conclusions well- grounded in theory and literature, showing development of new concepts. |
Good development as
shown in summary of arguments based on theory/literature and beginnings of synthesis. |
Evidence of findings
and conclusions grounded in theory/literature. |
Limited evidence of
findings and conclusions supported by the literature and theory. |
Lack of substantiated/valid
conclusion, based on anecdotes and generalisations only. |
Unsubstantiated/invalid
conclusion, based on anecdotes and generalisations only. |
| Skill at facilitating discussion | Excellent enabling
pacing and summarising of discussion. |
Clear evidence of
ability to stimulate, facilitate and summarise discussion. |
Some ability to
stimulate and facilitate discussion or be directive. |
Some ability to
facilitate discussion but tendency to miss opportunities. |
Limited ability to stimulate/
facilitate discussion. |
Inability to stimulate/
facilitate discussion. |
| Clarity and quality of written expression | Clarity of expression
excellent. Consistently accurate use of grammar and spelling professional/academic writing style. |
Thoughts and ideas
clearly expressed. Grammar and spelling accurate with fluent fluent. |
Language mainly
fluent. Grammar and spelling mainly accurate and language fluent |
Meaning apparent
but…. language not always fluent, grammar and spelling still poor. |
Purpose and meaning
of assignment unclear. Language, grammar and spelling weak. |
Purpose and meaning
of assignment unclear. Language, grammar and spelling poor. |
| Understanding of
subject |
Work shows a well-co-
ordinated, grounded and reasoned understanding of topic and its relevance to practice |
Consistent
understanding demonstrated in a logical, coherent and lucid manner. |
Demonstrates
understanding in a style which is logical, coherent and flowing. |
Attempts a logical
and coherent understanding of the subject area. |
Marginal fail to demonstrate
understanding of the subject/topic area. |
Fails to demonstrate
understanding of the subject/topic area. |
| Referencing | Referencing clear, relevant and consistently accurate using the Harvard system. | Referencing relevant and mostly accurate using the Harvard system. | Minor inconsistencies and inaccuracies in referencing using the Harvard system. | Referencing present but had inconsistencies and inaccuracies. | Referencing inaccurate | Wrong or absent. |
| Use of literature | Has developed own
ideas and justified using a wide range of sources of theories and literature which has been thoroughly analysed, applied and tested. |
Ability to appraise
critically the theory and literature from a variety of courses, developing own ideas in the process. |
Clear evidence and
application of readings relevant to the subject within the text. |
Evidence
of reading around the subject. |
Little evidence of some
limited reading around the subject |
No Evidence of reading around the subject |
Generic Descriptors
| Band | Conversion scale for UG Programmes | Conversion scale for PG Programmes | Generic descriptors |
| 8 | 90 – 100 | 90 – 100 | All learning outcomes and task specifications have been achieved to an exceptionally high standard (according to the level of study).
The outcome of the assessment task is presentable in a professional context and may extend practical or theoretical knowledge in the field. It displays an exceptionally high level of understanding, evaluation, insight, analysis, reflection and/or criticality (according to the level of study), and connections are developed both within and beyond the task set.
The work’s organisation, structure and presentation are developed to an exceptionally high standard. |
| 7 | 80 – 89 | 80 – 89 | All learning outcomes and task specifications have been achieved to an outstanding standard (according to the level of study).
The outcome of the assessment demonstrates an outstanding display of understanding, exploration, evaluation, insight, analysis, reflection, criticality and/or research (according to the level of study). Connections are developed both within and beyond the task set.
The work’s organisation, structure and presentation are developed to an outstanding standard. |
| 6 | 70 – 79 | 70 – 79 | All learning outcomes and task specifications have been achieved to high standard (according to the level of study).
The outcome of the assessment demonstrates an excellent display of understanding, exploration, evaluation, insight analysis, reflection, criticality and/or research (according to the level of study), and connections are developed both within and beyond the task set.
The work’s organisation, structure and presentation may be developed to an excellent standard. |
| 5 | 60 – 69 | 60 – 69 | All learning outcomes have been achieved at a good and some to a very good standard (according to the level of study).
The outcome of the assessment demonstrates a very good level of understanding, exploration, evaluation, analysis, reflection, criticality, some insight and/or very good research (according to the level of study), and connections are established within the task set, and in some cases reaching beyond.
The work’s organisation, structure and presentation may be developed to a very good standard. |
| 4 | 50 – 59 | 55 – 59 | Most learning outcomes have been met at a good standard (according to the level of study).
The outcome of the assessment demonstrates a good understanding, exploration, evaluation, analysis, and some reflection, criticality and/or appropriate research. (According to the level of study)
The work’s organisation, structure and presentation may be appropriately developed. |
| 3 | 40 – 49 | 50 – 54 | All learning outcomes have been met to a minimum satisfactory standard (according to the level of study).
The outcome of the assessment shows an adequate understanding, of major ideas, with little insight and basic research. Limited level of analysis, reflection and/or criticality (according to the level of study).
The outcome of the task shows ability to paraphrase concepts and theories, with limited ability to make connections.
The work may be disorganised, and the structure and presentation may be barely adequate. |
| 2 | 30 – 39 | 36 – 49 | Most learning outcomes have almost been met, whilst the rest have not (according to the level of study).
The outcome of the assessment shows a limited understanding of major ideas, with little insight, very basic research, and very limited ability to make connections. No analysis, reflection and/or criticality (according to the level of study)
The work may be disorganised, and the structure and presentation may be barely adequate. |
| 1 | 11 – 29 | 21 – 35 | The majority of the learning outcomes have not been met (according to the Level). The outcome of the assessment task is incomplete, flawed, very limited and/or presents significant inaccuracies.
The outcome of the assessment shows very limited understanding with no insight, and very limited ability to make connections within basic ideas in the field, very fragmented. Lacks research. No analysis, reflection or criticality (according to the level of study)
The work is disorganised, and unstructured. Presentation is barely adequate. |
| 0 | 0 – 10 | 0 – 20 | None of the learning outcomes have been met. The task has not been addressed by the student, or there is no assessable task.
The outcome of the assessment shows no understanding of basic ideas, with no insight and shows no ability to make connections within basic ideas in the field, or the connections are completely irrelevant. Lacks research. No understanding, analysis, reflection nor criticality.
The work completely lacks organisation and structure. Presentation is completely inadequate. |
