Posted: September 13th, 2017

Coursework Approval Request – Semester 2 2014/15

Coursework Approval Request – Semester 2 2014/15

Module Title:  Quantitative Research Methods in Finance (Main Coursework – 30%)

Group Assignment
Rubric

There must be a word count at the end of your essay. Raw Eviews output should not be included in the text. Any estimation results must be presented and explained as they would in published academic papers. Any attached appendices or photocopies of tables will be ignored – so don’t include them – but note that it may be a good idea to incorporate some tables / graphs / diagrams in this assignment (embedded in the main text).

Your essay should have page numbers, be in 12 point typeface with 1.5 line spacing. There must be a bibliography, with works listed in alphabetical order, though this is not included in the word count. The bibliography should contain the material that you have cited in the text; long lists of works not cited in the text do not impress. All quotations should be appropriately attributed, as should key facts and views obtained from others. The citation method used must be the Harvard system (described on the library’s web-site), and you should be careful to include page numbers in your citations where necessary; for example, when using quotations the citation must have the exact page number/s, viz: (Bloggs, 1998: 34). Your essay may be submitted in a simple folder so long as the assignment cover sheet can still be read without opening the folder, BUT our preference is that you submit your essay without any folder/cover, just stapling the cover-sheet to your work.

Question Two

Background information for Question Two

Question Two requires use of the appropriate Eviews workfile (r-stock1.WF1). The work file contains daily data for the logarithmic returns of four stocks of the UK stock market.

Tasks for Question Two

(a)  Plot the series and comment on the ’herding behavior’ or ’volatility cluster’ of the stock market returns series for the specific country allocated according to your group. Also comment on the skewness and kurtosis of the allocated series.

(b) With respect to the series allocated to you, test for the presence of heteroscedasticity using the following ARCH orders (use LM ARCH test): ARCH(1) and ARCH (10). Compare the results and plot their respective conditional variances.

(c) After testing for heteroscedasticity using LM ARCH procedure in the previous question if you are convinced that there is significant heteroscedasticity, then test for ARCH(1) and ARCH(5) and explain both mean and variance equations of these models.

(d) Re-estimate the series allocated to you by using a symmetric GARCH(1,1) model for the conditional variance of the error. You may choose either the   or the General Error Distribution (GED). Present the results and discuss the equation for the conditional variance.