Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

FINANCIAL ECONOMETRICS ECO4185A

GROUP ASSIGNMENT 1 (25 % of course grade)

QUESTIONS:

Open a new EVIEWS workfile and import all the series in the provided dataset ECO4185-assignmentsdata-Fall2022.xlsx. In all the questions, use the full sample of data unless specified otherwise.

1.    Plot the monthly equity returns of the Toyota Motor Corporation (symbol TM) and describe the general evolution of the series over time. (10%)

2.    Estimate the BETA for this company using the CAPM equation (make sure that all the series in the model are          expressed in the same units). Report the outcomes and explain the results. How risky is this asset compared to the market portfolio? Why? (10%)

3.   Test the hypothesis at the 5% level that the intercept equals zero. Report the outcome. Should an intercept have been included in the estimation model? Why/Why not? (10%)

4.   The APT model suggests that the unexpected change in inflation, the unexpected change in the growth rate of     industrial production, and the unexpected change in the term spread should be added to the CAPM regressor(s), since these variables also influence expected asset returns. Assume rational expectations and test the hypothesis that these additional regressors are jointly significant at the 10% level. Report the outcomes and explain which of the two models, CAPM or APT, is better for describing the expected returns of Toyota Motor Corporation. (10%)

For questions 5-8, consider the CAPM model for the expected returns of the Toyota Motor corporation.

5.   Test whether TM expected returns are autocorrelated up to order 4. Which test is used? What is the null                hypothesis tested? Explain briefly the obtained results. Do you need to make any adjustments to your model or to your estimation method? (15%)

6.    Consider the model without any adjustments. Test whether the linear form is the appropriate functional form.    Which test is used? What is the null hypothesis tested? Explain briefly the obtained results. Do you need to make any adjustments to your model or to your estimation method? (15%)

7.    Consider the model without any adjustments. Test for the stability of the parameters of the CAPM model for TM expected returns over two subperiods: January 1995 to December 2000, and January 2001 to December 2007.    Which test is used? What is the null hypothesis tested? Explain briefly the obtained results. Do you need to make any adjustments to your model or to your estimation method? (15%)

8.    Consider the model without any adjustments. Test for heteroscedasticity of general form at the 10% level. Which  test is used? What is the hypothesis tested? Explain briefly the obtained results. Plot the model residuals. How do these explain your results? Do you need to make any adjustments to your model or to your estimation method?    (15%)