Posted: February 4th, 2015
Paper, Order, or Assignment Requirements
ASSIGNMENT 2014 (REGULAR)
Quantitative Techniques in Finance and Investments (# 56240)
The model below is for an APT (arbitrage pricing theory)-type multiple regression analysis and it investigates what influences the rate of return on a company’s shares.
ERCOMPANYt = α+β1ERSFTSEt+ β2TERMt + β3EXCHANGEt+ β4INFLATIONt
+ β5DMONEYt+ β6OILt +εt (1)
The dependent variable (ERCOMPANY) is the company’s excess return based on its share price {labelled as COMPANY in the Excel data spreadsheet}. Note that you are expected to construct this variable yourself, knowing that excess return means the additional return on top of risk-free rate proxy, i.e., TBILLSHORT as explained below.
The explanatory variables are:
In order to employ a set of regression analyses, the dataset is provided in eBridge (file name: Data for Assignment 2014.xlsx). The data is real data, with monthly frequency during the period September 1986 to August 2013. The explanatory variables on the right hand side are the same for all students. However, each student is allocated a different company; hence, the dependent variable of each assignment will be different. Check your student number to find out which company is allocated to you in the ‘company share price’ spreadsheet. Then, copy/paste your company’s share price in column B of the spreadsheet named ‘Macroeconomic data’ in the same file.
APT assumes that it is the unexpected changes in financial and macroeconomic factors that exert influence on company returns. Therefore, before analysing data with regressions, you are advised to read the core textbook and module notes to identify how to use the raw data to transform series into variables that will eventually be included in the regression model.
Required:
(25 marks)
(35 marks)
(15 marks)
(15 marks)
(10 marks)
NOTES:
ADDITIONAL NOTE FOR DATA SOURCES:
Reuters Thomson One database provides data and profile of companies and Hull University is subscribed to this valuable service. You can read and get to know about your company, and then mention about it in the assignment. This would be relevant especially when you think that the results are not very desirable or surprising. In order to use Thomson One you can use the below express login. As long as you are around Hull campus or nearby, you won’t be asked any username or password.
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