Financial Econometrics

Financial Econometrics

The Eviews workfile “tutorial_assignment.wf1” located under “Tutorial Assignment” heading on iLearn contains monthly returns for the period January 1980 – November 2011 for the following series:
1. Monthly returns for two portfolios
a) (a portfolio of hi-tech companies)
b)(a portfolio of companies producing non-durable goods)
2. Four factors based on the Chan, Roll and Ross (CRR) model:
a) (Market Return),
b) (change in US personal consumption)
c) (Risk spread i.e. BAA – AAA bond yield)
d)(Term spread i.e. 20yr – 1yr bond yield)
3. (the US risk free rate)
All data is sourced from Ken French’s online data library.
Question 1:
a. Explain what Hi-Tech and Non-Durable goods are, and how you would expect demands for these products to differ during times of recession and economic expansion. (3 marks)
b. In one-two paragraphs discuss the four factors provided, and explain what economic forces they represent. (4 marks)
c. What signs (positive or negative) would you expect to estimate on the consumption, risk and term spreads in each of the two portfolio equations? Why? (4 marks)
d. Plot the monthly returns on the two portfolios and provide basic summary statistics. Discuss and compare the two return series in terms of these quantities. ,
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