MFIN8852 Financial Econometrics, Fall 2022
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MFIN8852 Financial Econometrics, Fall 2022
Directions for Mid Term Exam
Computer Check and Set Up
We will be using Proctorio, the online proctoring system used at BC to support exam taking. Some of you undoubtedly have had experience with it but some may not. In advance of the exam, you must insure your computer is configured correctly.
Before Midnight on October 15th, you must ensure your computer is configured correctly. Here is what you need to know and do so you are set up to take the exam.
▪ You must use a laptop, desktop, or Chrome book to take the exam
▪ The exam cannot be taken on a mobile device
▪ You must have the Google Chrome browser installed on your device. It’s required for using Proctorio
▪ Once you have the Google Chrome browser installed, you will also need to set up Proctorio by logging into our Canvas course. When you do that you will see an option on the left hand side of the screen: “Secure Exam Proctor” . It is in the same lineup that includes “Models”, Panopto Recordings” etc.
▪ Selecting “Secure Exam Proctor” . that will take you through some quick set up steps
▪ For background more details are included under this BC/ Proctorio, link:
http://cteresources.bc.edu/documentation/assignments-and-grades/high-stakes-testing-in- canvas/proctorio-for-students/
▪ For the exam your webcam and audio must be on. Otherwise Proctorio will not allow you to begin
▪ Proctorio will record and document the Exam, including all screen and key stroke activity
▪ Therefore, as with live exams your effort has to be completely your own. You cannot offer nor accept help from others or from any source other those allowed by the professor
▪ During the exam all cell phones must be off, no recording device can be used, headphones are not allowed and no pictures can be taken of any of the exam materials
▪ Proctorio helps attest that the highest ethical standards have been observed by all students and extensively documents all activity and highlights violations
Part 2: After you completed the steps above, please perform the following system’s test before Midnight on October 15th :
To confirm that you have configured Proctorio correctly please close all applications on your computer. Then log into our course on Canvas using GOOGLE CHROME. Under Quizzes, open “Test Quiz: to Confirm System Setting Using Proctorio in Mid Term”. This is not graded, again it is just a systems test. As you will see there are two general questions about your profile, so no preparation needed and no right answers! Once you have answered the two questions hit submit at the bottom of the test. Let me know if you have any issues as they need to be resolved as soon as possible.
Preparing for the Mid Term
Material from the beginning of Lecture 1 through 6 is fair game for the Mid Term. Reviewing the notes and Problem Sets are critical preparation for applying concepts and solving problems.
Lecture 1
o Know how to calculate the Arithmetic Mean and Standard Deviation for asset returns and then use Z scores to estimate the probability of an outcome
o Understand the central limit theorem and the Standard Error of the Mean
o Apply and interpret the KS test to determine if data is normally distributed
Lecture 2
o Sharpe Ratio is a measure of asset performance. Be able to compute and interpret it
o Know how to apply the Difference Between Two Mean’s test and also be able determine if the risk of two assets or portfolios is significantly different
o Covariance and Correlation are critical to asset allocation, therefore know how to compute and apply in determining portfolio risk. Also know how to access if correlation is significant
Lecture 3
o Be able to set up Confidence intervals for hypothesis testing
o Value at Risk (VAR) is an important risk management tool. Understand how to compute and have an appreciation of its shortcomings
Lecture 4
o Know the critical assumptions underlying Linear Regression
o Understand and be able to apply all the Linear regression calculations related to the example on Slides 92- 101
o Also be able to interpret Excel Regression output. See Slide 104
o Finally know how to compute regression output using Matric Algebra. Review example on Slides 111- 114
o Also know how to compute the variance of a 2 asset portfolio using Matrix Algebra per the introduction on Slide 115 and the example on Slide 116
Lecture 5
o Know how to compute a Geometric mean by linking returns together over time. Also be able to estimate it given the Arithmetic mean. Examples on Slide 126
o Geometric Brownian Motion (GBM) is one of the most robust models to describe or capture the random behavior of stock prices. Know the basic relationship and how it can be transformed into a liner regression application as describe on Slide 127
o Additional context is provided on Slide 129. Also be able to interpret the regression results on Slide 131
o Review and be able to compute and apply the ANOVA table output on Slides 134- 135 and compute the F test. Also understand the tie in between the F test and the R2
o The Chow Test is a powerful tool in helping determine regime changes in data series. Understand its drivers and application in determining significant shifts. The Halloween Effect example on Slides 141- 145 are empirically interesting
Lecture 6
o Understand what Heteroscedasticity means and how to detect using both the GQ Test and the White Test
o Know how to perform a technical correction, using the Weighted Least Squares (WLS), if there is a problem and how you use the WLS regression output to improve the model
o The WalMart case study on Slides 153- 163 and the simulated case on Slides 165- 168 are a comprehensive review of the research techniques and calculations
2022-10-18