Assignment: APPLIED ECONOMETRICS
You need to choose 10 firms from one index (FTSE 250 or FTSE 100) and from one of more related sectors, such as bank and insurance, food and health and etc.
Once you have chosen your firms, you need to check where each firm has more than three years data, then download daily closing prices for recent three years from yahoo finance or London stock exchange website . You need also to download monthly average risk free rate (Treasury bills - 3 month)
1- Calculate the daily return for your 10 firms and related index. Plot average and each firm returns against market return and comments on the shape, distribution and correlation. Calculate the descriptive statistics and discuss the result.
2- Estimate the CAPM (Ei - r = βi (EM - r )), assuming the risk free rate is the same for all days over each month (assume the monthly rate as daily rate). Interpret the result and comments on the reliability of the result by doing all diagnoses tests.
3- Explain why it is more reasonable to use daily return rather than stock price based on the properties of time series. This should be based on reasonable tests of time series of return and stock prices regarding stationarity and forecasting based on your firms and index.