ECO310 - Econometrics of Time Series
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2nd SEMESTER 2022/23 Group Assignment
ECO310 - Econometrics of Time Series
This assessment takes the form of a group research project (6 students in each group), with group membership randomly assigned.
The coursework project is part of the assessment for the ECO310 module with a weight of 15% of the final mark for the module.
Project Task
Each project group is randomly assigned time series for 3 stocks sourced from DataStream, which contains closing prices and trading volumes from the periods of December 30, 2016 to December 30, 2022.
Based on trading information of the 3 stocks that are assigned, using appropriate time series econometric techniques, please answer these research questions in sequential orders in your report.
1. Comment on the trading performance of the three stocks during this period. What are your year-on-year realized returns if you hold an equally weighted portfolio of the 3 stocks?
2. Does any of the series display serial correlation and unit root? If so, what does this mean to a retail investor who has zero knowledge of time series analysis?
3. What is your forecast of the prices and trading volumes of all three stocks in the first three trading days of the year 2023? What are your expected returns if you hold an equally weighted portfolio of the 3 stocks?
Hint: For each of the six series, develop a suitable ARIMA model and then use these to implement one-, two-, and three-step ahead out-of-sample forecasts.
4. Are the market capitalization of all three stocks dynamically related and endogenous? If so, comment on which stock is likely to be the market leader/mover? Illustrate and comment on the impacts of a negative shock onto its market capitalization on the other two stocks.
Hint: Market capitalization = Price * Volume. You can make use of the Granger causality test and then develop a suitable VAR model to examine its impulse response functions in answering this question.
5. Did the COVID-19 pandemic outbreak in March 2020 cause the market to be more volatile? Use a proper structural break test and/or a regime-switching model to show that this structural change is indeed significant.
If so, how would you go about changing your portfolio weights for the three stocks after the pandemic outbreak (from the initially evenly split weights)?
Hint: You mayfind Section 2.8.1 of Brooks useful.
If further analyses are deemed relevant and can strengthen your arguments, you can add more information that may be peripheral but in support of your arguments.
Submission and deadline
Note that group mark is the same for all group members. However, if the majority of students within a group are in consensus that a particular student has not participated and contributed in the group project, he/she would receive 30% penalty from the group’s project mark.
Each group should submit a report, with no less than 2000, but no more than 4000 words (excluding title page and Appendix), through LMO no later than 17:00, May 8 2023.
In each group one group member submits the assignment on behalf of all the group members on the LMO. Detailed student names and numbers of all group members should therefore be included in the front title page of the report submitted.
Late submissions policy: Late submissions will be penalized 10 marks for every working day past deadline. Late submissions will be accepted till +5 working days after the deadline.
Backup: If for some reason submission through LMO fails, students can send their coursework to the module leader via e-mail:[email protected]
Assessment
The final mark will be based on the evaluation of the submitted report according to the following criteria (percentages out of total marks in parentheses):
(i) Data & preliminary analysis (20 percent): Your report should have a clearly explained dataset with the indicated time period. The selection of the dataset and specific details such as handling missing observations etc., as well as the preliminary graphical analysis, should be included in the report.
(ii) Methodology (25 percent): Econometrics methodology applied in every step
should be explained clearly and sufficiently. Specifically, the rationale of applying each methodology should be justified given the empirical features observed in the dataset.
(iii) Written report quality and presentation of results (30 percent): Overall,
quality of the written report and the clarity of presentation of the results are very important criteria in the marking. The flows of the analyses implemented should
be coherent, easy to follow, and make econometric senses. Any mistake made in terms of results’ interpretations will be penalized accordingly.
Note that proper use of English grammar and vocabulary is important.
(iv) Literature and References (15 percent): Literatures referred to should be
discussed and relevant, and then properly cited and referred to. References styling must be consistent following the Harvard referencing style. The studies that are utilized should be briefly discussed and referenced.
(v) Technical appendix (10 percent): All the E-Views output (or other computational tools deemed appropriate) involved in guiding the empirical analyses must be included in the Appendix part. These should be clearly labelled and put in order according to the use in the project report.
Please refer to the marking grids for further details on how these criteria are individually assessed.
Plagiarism
Passing off someone else’s work as your own–whether deliberately or inadvertently–amounts to a serious form of academic misconduct. All submitted group assignments are subject to Turnintin Similarity Scores check. As such, do not copy and paste material from any source such as lecture notes, academic books, journals or websites. You should not copy and paste graphs directly from other sources too. Instead, construct these graphs yourself in either E- Views, MS Excel, or any other equivalent computational programs.
For recurring acronyms, define on first mention. Allow time for editing and proof-reading to ensure your work reads well and has no spelling/grammatical errors.
2023-05-02