Reference no: EM132304403 , Length: word count:3000

Forcasting Assignment -

Objective: To forecast stock return and volatility using ARIMA and GARCH models.

Description: You should choose four stock price indexes from Eikon Thomson and Reuters or Yahoo Finance:

Part 1:

a) Brief Introduction about ARIMA model

b) Convert the stock prices to stock returns

c) Discuss descriptive statistics

d) Check for outliers

e) Check stationarity of the stock prices and stock returns

f) Find the best ARIMA model using all the required steps

g) Forecast one period stock returns using the chosen ARIMA Model

h) Get the forecast evaluation measures

i) Write a whole summary of all finding

Instructions for Part 1 -

1. Data (stock prices) must be monthly and for a long period, (File attachment for example and should not be used for answers).

2. The return of the stock should be calculated through Excel, and then transfer the results to Gretel.

3. All answers to this part must be through gretl software only.

4. All steps should be documented so that the reader can re-apply the steps himself, For example, you should take a Print screen when doing each step.

Part 2:

a) Brief introduction about GARCH model

b) Check the ARCH effect

c) Estimate the volatility of the stock returns using GARCH, EGARCH and TARCH Models and the chosen ARIMA model from Part I in the main equation.

d) Plot the volatilities you will find from b) and provides comments about these plots.

e) Choose the best GARCH model using AIC and BIC

f) Forecast the volatility for one period using the chosen model from d).

g) Get the forecast evaluation measures

h) Write a whole summary of all the finding.

Instructions for Part 2 -

In this part the STATA software should be used while checking the ARCH effect as well as estimating the volatility of the stock returns using GARCH, EGARCH and TARCH.

Please note that you need at least 1500 word in the part 1 and at least the same in part 2.

Number of Words: 3000 (+/- 10%).