Assignment: Econometric Methods
Part A:
Perform the following activities:
1). Using data for your sub-period calculate and report in a table (Table 1) the descriptive statistics (mean, median, standard deviation, skewness, kurtosis, minimum and maximum) for both the price levels and price returns (relative prices) using logarithmic returns of your selected NYSE stock. Briefly comment on the results.
2). Provide separate time series plots of each variable to present: (i) price levels; (ii) returns;
(iii) squared returns. Briefly comment on the results.
(Hint: The squared return time series is used to indicate a price volatility time series).
3). Test for normality for the excess return series of your NYSE stock and the market (Hint: Test whether the excess return data are normally distributed.) Comment on the results.
Part B:
4). Estimate Fama-French's three-factor empirical asset pricing model (Fama and French, 1993) using the market excess return (Rm-Rf), SMB and HML factors. Report the estimation output in a table (Table 2). Test the individual significance of the slopes of the estimated risk factors (Hint: a hypothesis test of the null that the estimate is equal to zero (‘0')). Test the joint significance of the slopes of the estimated risk factors (Hint: perform a test of the null hypothesis that each of the three slope estimates is jointly equal to zero (‘0')). Comment on the results.
5) Estimate the five-factor Fama-French (the full model) and the three-factor Fama-French empirical asset pricing models. Report the estimation output of the five-factor model in a table (Table 3). Compare the statistical significance of these two empirical asset pricing models. (Hint: perform statistical testing of the unrestricted model the (full) five-factor Fama- French model and the restricted three-factor Fama-French model.) Comment on the results.
You are expected to prepare and submit three separate files with clear identification of your name and student ID in the file name:
1) An Excel file containing your assigned data and variable calculations.
2) An Eviews file containing all estimated descriptive statistics and models.
3) A written report not exceeding 1,000 words of your results from Part (A) and Part (B). (Hint: Save all files with thefile name: "Ass1_FirstName_ID.***")
References:
Fama, E.F. and French, K.R., 1993. Common risk factors in the returns on stocks and bonds, Journal of Financial Economics 33, 3- 56.
Fama, E.F. and French, K.R., 2015, A five-factor asset pricing model, Journal of Financial Economics 116, 1- 22.
Attachment:- Assignment-Data.rar