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‘Ÿπ‘¦π‘‘ βˆ’π‘“_π‘Ÿπ‘“ 𝑑) = 𝛽0 +𝛽1𝑓_π‘šπ‘˜π‘‘_π‘Ÿπ‘“ 𝑑 +𝛽2𝑓_π‘π‘šπ‘Žπ‘‘ +𝛽3𝑓_π‘Ÿπ‘šπ‘€π‘‘ +𝛽4𝑓_π‘ π‘šπ‘π‘‘ +𝛽5𝑓_β„Žπ‘šπ‘™π‘‘ + πœ€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‘Ÿπ‘¦π‘‘ βˆ’π‘“_π‘Ÿπ‘“ 𝑑) = 𝛽1𝑓_π‘šπ‘˜π‘‘_π‘Ÿπ‘“ 𝑑 + 𝑒𝑑]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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