Reference no: EM131445621 , Length: word count:4500

Instructions:

1. Assignment must be completed in groups of four.

2. Your analysis should be developed according to the relevant econometric and financial theory.

3. Be sure to present all your econometric output as an attachment to your final report Appendix, and also, that all the information is properly referred through your intext explanations (tables, charts, etc., can be used to support your intext discussions). The Appendixes should be organized according to appropriate tables and relevant information. Avoid copying and pasting the output generated by the Eviews software.

4. Final Report is subject to a maximum of 15 pages (font: Times New Roman, font size: 12, line spacing: 1.5) without appendixes.

5. In addition you have to get the country exchange rates vs. a hard and soft currency for the selected domestic market (stock markets and exchange rates to be selected by the group). Your group will decide which countries are going to be included in your research project and you will have to justify your decision (use peer review sources to support your critical analysis and discussions). Once you have identified the equity markets, and the currency markets to be included in your project, your next step should focus on studying the long- and short-term relationships between stock returns and exchange rates. This analysis will be conducted by applying the appropriate econometric tests identified by the group (your Econometrics 2 lectures should be taken as the main point of reference). Your project should attempt a volatility analysis using an appropriate econometric model that should be supported with a contagion analysis between selected variables by the group. Your final report should provide a critical discussion based on the group major findings. Thus, you should start with a critical analysis of major studies conducted in the field, a presentation of your data and methodology, discussion and limitations of your research major findings - with an emphasis on the implications that your results could have for academics, governments, and investors.

Work to Do:

PART A

1. Your task requires the analysis of one minor stock market versus one Major Stock Market; therefore you have to select the markets that you wish to study. Once this is done, you have to get the exchange rates vs. hard and soft currencies (be sure to include domestic currencies in your project).

2. Once you have decided which countries are going to be under analysis, your next step would consist in gathering enough evidence analysing the relationship between Stock Markets and Currency Markets.

3. When your econometric techniques have been identified and understood. Your group should write a detailed report addressing the following issues: a) Describe your data and methodology. You should provide a detailed explanation of the data source, time period under analysis, and basic econometric test to be applied. b) Discuss your main findings. c) Conclude your report, highlighting the importance of your results and what have you learnt in these section.

PART B

1. The second part of your project consists in conducting a Volatility analysis using an appropriate model (check your Econometric class notes) between the stock markets and exchange rates selected. Before implementing your test, you should provide clear explanations and discussion on the selected techniques, their relevance and how do you intend to use them.

2. You will conclude your research looking at contagion effects between equity and currency markets and providing relevant conclusions that link your report major findings.

N.B:Econometrics techniques would be explained during lectures. Labs are designed to help you out with your methodology. EVIEWS must be used to support your econometric modeling. Questions related to your own projects would be dealt during tutorials. Your referencing should be in line with the Harvard referencing style (intext and list of references)