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Postgraduate Programmes 2020/21

ECON42115

Financial Modelling & Business Forecasting

SUMMATIVE ASSIGNMENT - RESIT - ECON42115

Financial Modelling & Business Forecasting

In this assignment you will have to examine the causal relationships between finance and macro variables.

For a country of your choice, download enough data (get the maximum number of observations) on the following variables: stock market index, exchange rate, public expenditures, and investment. Use this data to study the relationships between stock market index, exchange rate, public expenditures, and investment. To do so, you need to answer the following questions:

(i) [10 marks] Compute and discuss the descriptive statistics of your time series (in levels and logs). Plot the series and describe patterns.

(ii) [10 marks] Report and comment on the ACF/PACF functions of stock market index, exchange rate, public expenditures, and investment and their first-differences in log.

(iii) [20 marks] Use appropriate Dickey–Fuller tests to test if the variables stock market index, exchange rate, public expenditures, and investment and their first-differences in log are non-stationary (have a unit root) or not. Explain the test procedure, report the test statistics and the appropriate critical values (at 5% significance level) and discuss the results.

(iv) [20 marks] Test for cointegration among the four variables using Johansen’s tests. Explain the test procedures, report the test statistics and the appropriate critical values (at 5% significance level). How many macro variables are cointegrated with stock market price? Discuss the results.

(v) [30 marks] If you have found one or more cointegrating relations, estimate the long-run causal relationships (i.e., the cointegrating relations) and the Vector Error Correction Model. Otherwise, use the Box-Jenkins procedure to estimate a VAR model for the appropriately transformed (de-trended or differenced) variables. Discuss the results.

(vi) [10 marks] Find three published papers on the relationship between stock market price and the above macro variables and discuss/compare your results to those obtained in these papers.

Overall word limit: 2500

Assignments should be typed, using 1.5 spacing and an easy-to-read 12-point font. Assignments and dissertations/business projects must not exceed the word count indicated in the module handbook/assessment brief.

The word count should:

■ Include all the text, including title, preface, introduction, in-text citations, quotations, footnotes and any other items not specifically excluded below.

■ Exclude diagrams, tables (including tables/lists of contents and figures), equations, executive summary/abstract, acknowledgements, declaration, bibliography/list of references and appendices. However, it is not appropriate to use diagrams or tables merely as a way of circumventing the word limit. If a student uses a table or figure as a means of presenting his/her own words, then this is included in the word count.

Examiners will stop reading once the word limit has been reached, and work beyond this point will not be assessed. Checks of word counts will be carried out on submitted work, including any assignments or dissertations/business projects that appear to be clearly over-length. Checks may take place manually and/or with the aid of the word count provided via an electronic submission. Where a student has intentionally misrepresented their word count, the School may treat this as an offence under Section IV of the General Regulations of the University. Extreme cases may be viewed as dishonest practice under Section IV, 5 (a) (x) of the General Regulations.

Very occasionally it may be appropriate to present, in an appendix, material which does not properly belong in the main body of the assessment but which some students wish to provide for the sake of completeness. Any appendices will not have a role in the assessment - examiners are under no obligation to read appendices and they do not form part of the word count. Material that students wish to be assessed should always be included in the main body of the text.

Guidance on referencing can be found in the programme handbook and on DUO.

MARKING GUIDELINES

Performance in the summative assessment for this module is judged against the following criteria:

● Relevance to question(s)

● Organisation, structure and presentation

● Depth of understanding

● Analysis and discussion

● Use of sources and referencing

● Overall conclusions

The word count should include all the text (plus endnotes and footnotes), but exclude diagrams, tables, bibliography, references and appendices. Guidance on referencing can be found in your Assessment handbook under ‘Things you Need to Know’ on DUO.

PLAGIARISM AND COLLUSION

Students suspected of plagiarism, either of published work or the work of other students, or of collusion will be dealt with according to School and University guidelines.

Your assignment will be put through the plagiarism detection service.

END OF ASSESSMENT