Reference no: EM132500680 , Length: word count:1500

ECON2181 Introduction to Financial Econometrics - Durham University

Company - BMO GLB. SMCOS

Using Oxmetrics program

Question 1: Download the monthly data series from DataStream for the period between January 2000 and December 2019 for the following:

the share price from a company that has been randomly assigned to you,

(you will be provided with the name of the company assigned to you in the ‘Assessments' folder in Introduction to Financial Econometrics site on DUO.)
the FTSE All Share Index (proxy for the market portfolio), and
the UK 3 Month Treasury Bill (proxy for the risk-free rate of return).
Note: the UK 3 Month Treasury Bill Interest Rate is given as an annualrate.

Transform prices into log returns, plot the return data, report the sample statistics, and examine whether the log returns are normally distributed.
Carry out a test for stationarity in your company return and the market return. Carefully explain the test procedure and the importance of your results.

Identify an univariate time-series model for the estimation of your company's return. Comment on the procedure adopted and pay particular attention to the identification, estimation and diagnostic stages of the modelling process.

In finance it is customary to explain the changes in the excess return on an asset as a linear function of the excess return on the market portfolio, i.e.,

Rt=α+βRMt+ut (1)

whereRt is the excess return on a stock (with respect to the risk-free rate), RMt is the excess return on a market index (with respect to the risk-free rate).

i. Estimate the beta value of your company using the model described in equation (1) and check the adequacy of the model.

ii. Construct an appropriate dummy variable and estimate a multiple regression model to investigate whether the result of British referendum to withdraw from the EU (‘Brexit') has had an impact on your company's return and its beta.

Attachment:- Introduction to Financial Econometrics.rar