Reference no: EM132670862

Question 1. Import the data contained in data_assignmenti_parti .x1sx to EViews and make a graph illustrating all six variables. Does it suggest that the time series of Zit for i = 1, ..., 5 are positively correlated with Zmt? Does this graph provide any information about whether or not the CAPM is empirically supported? Motivate your answer!

Question 2. Estimate the following model:
Zit = αi + βiZmt + ∈it for i = 1,...,5. (1)

Test for heteroscedasticity by running White and Breusch-Pagan tests. In addition, test for serial correlation by using Durbin-Watson, Breusch-Godfrey and Portmanteau (i.e. Q) tests. In case heteroscedasticity and/or autocorrelation are found, re-estimate the models by adjusting accordingly the standard errors. Make the tables that include: (i) results of all diagnostic tests, and (ii) estimation results of the model in Eq. (1) for all five portfolios.

Question 3. Make a bar chart that illustrates the test statistics associated with the signifi-cance test of αi for i = 1, ..., 5, based on estimation results as obtained previously. Does this chart say anything about significance of "Jensen's alpha"? Test for the presence of abnormal returns for all five portfolios. Draw the conclusions!

Question 4. Estimate the CAPM model given by:
Zit = βiZmt + ∈it for i (2)
Perform a statistical test to test that the CAPM model holds empirically by testing whether pi is statistically significant. Report the estimation results and draw the conclusions. Next, test whether the restriction = 1 holds for all five portfolios. Report and discuss the re¬sults. Draw the conclusions about the riskiness of each portfolio relative to that based on the market by referring to the previously obtained results.

*Correct and well-motivated answers to the questions 1-4 will give you 7 points.

Assignment - Part 2**

Question 5. Import the data contained in data_assignmentl_part2.xlsx to EViews. Com¬pute the first three principal components for the interest rates. Plot the eigenvectors for the three principal components in a diagram. These values correspond the coefficients of a multiple regression of the annual interest rates of different maturities on the three principal components. Discuss how each principal component affects the shape of the yield curve (see the notes below). Plot the first and the second principal components together with the inflation rate in two separate diagrams and discuss the results.

Notes: The yield curve shows different yields or interest rates across different contract lengths (maturities), at a given time. The empirical findings in general show that the first principal component represents the factors affecting the level of the yield curve, the second principal component represents the factors affecting the slope of the yield curve, and the third principal component represents the factors affecting the curvature (convexity /concavity) of the yield curve.

**Correct and well-motivated answer to the question 5 will give you 3 points.

Attachment:- data assignment 1 part 2.rar