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# A. Provide definitions for the 8 variables included in the datafile Explain the basic characteristics of the of two industries,

A. Provide definitions for the 8 variables included in the datafile Explain the basic characteristics of the of two industries, as well as what the explanatory variables are, and why they may be relevant. (hint: data descriptions are available from the sources noted above, you may Google various industries for industry characteristics, and for the explanatory variables read the article given in references). (5 marks) Β
B. Provide and discuss summary statistics for all data series, and test for the equality of the mean returns between your two industry portfolios. (hint: make sure you discuss risk, average returns, skewness, kurtosis, normality, etc) (5 marks) Β
C. Estimate the following model: Β
(ππππ’π π‘ππ¦π‘ βπ_ππ π‘) = π½0 +π½1π_πππ‘_ππ π‘ +π½2π_ππππ‘ +π½3π_πππ€π‘ +π½4π_π πππ‘ +π½5π_βπππ‘ + ππ‘ Β
for both industry portfolios in Eviews file, and present the fitted equations. Which parameters are statistically significant at the 5% level? Carefully interpret and discuss your results. (5 marks) Β
D. Conduct a test for the validity of the CAPM. What do you find? (5 marks) [hint: the CAPM equation is given by (ππππ’π π‘ππ¦π‘ βπ_ππ π‘) = π½1π_πππ‘_ππ π‘ + π’π‘]Β  Β
E. Conduct the basic diagnostic tests on the estimated model, i.e. autocorrelation (use 4 lags of residuals), heteroskedasticity (no cross product), non-normality, misspecificationΒ
of functional form (only quadratic term). Comment on your results and carry out remedies for problems you encounter. Do the results change after you have applied remedies? (10 marks)Β Β  Β
References Β
Fama, E. F. and French, K. R., A Five-Factor Asset Pricing Model (September 2014). Fama-Miller Working Paper. Available at SSRN: http://ssrn

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