Assignment-2014s2

ECON3206/5206, Financial Econometrics, 2014 S2 Group Assignment (10% + 2% + 5% in Total)1.This group assignment has three components. Of the total 17%, 10% is for the assignmentitself, 2% for the teamwork peer review, and 5% for an individually written piece entitled Reflection on Teamwork. These are detailed as the points/pages below. Please read thisdocument thoroughly (pages 0-6).2.This assignment must be completed in a group of 3 or 4 students. The members of a groupcome from the same tutorial class. If you are unaware of what group you are in, please email your tutor.3.Each group must submit one hard copy of the assignment and one online (soft) copy.4.The online submission deadline is 11:59pm, Monday, 20/October/2014. Each groupMUST submit the online copy to Turnitin on Moodle. A link to the assignment submission will be available prior to this date. Only one member of the group should make thesubmission – that person must be nominated on the Group Cover Sheet.5.tutorial .6.For both online and hard-copy submission, the assignment Cover Sheet must be properlyfilled, which includes the class number, group number, names and student numbers of the group members.7. A late-submission penalty of 20% will apply for each 24 hours late. This applies to both thehard copy and the soft copy submissions.8.For hard-copy submission, DO NOT use plastic sheets or binders. Simply staple the pagestogether. Do not submit loose-leaf sheets of paper.9.Each student MUST complete a confidential online self and peer assessment by11.59 pm,Friday, 24/October/2014. No marks will be awarded for this component, which is worth 2%, if the self and peer assessment is not completed by the deadline.10.Each student MUST submit a soft copy and a hard copy of the written piece Reflection onTeamwork (no more than 500 words) with the same deadlines as in Item 4 and 5. The soft copy must be submitted online to Turnitin (a separate link will be available). The hard copy must be submitted to your tutor at the beginning of your Week 12 tutorial.11.All submissions will be checked for plagiarism. The University regards plagiarism as a formof academic misconduct, and has very strict rules regarding plagiarism. Where it can beestablished that individual students are responsible for the plagiarism, those individualstudents will be penalised. However, where it is judged that the plagiarism should have been clear to the other group members, the penalty will apply to all members of the group.THE UNIVERSITY OF NEW SOUTH WALESSchool of EconomicsECON3206/5206, Financial Econometrics, 2014 S2Group AssignmentGroup Cover SheetCheck-list1.Choose one member to submit the assignment: one soft-copy to be submitted online and onehard-copy to be submitted to your tutor.2.Class number, group number, all names and student numbers of the group must be filled in onthis Cover Sheet.3.Each group member must complete the online self and peer assessment. Marks on teamworkwill be zero if this assessment is not completed by the deadline. Details about the teamworkassessment will be announced shortly (see Teamwork Assessment section at the end of thisdocument).Class: ________ Group: __RequirementsYou need to use EViews to complete this assignment, see Project Description on Page 2. The relevant topics mainly include descriptive statistics (Slides-01), ARMA models (Slides-03, 04), and ARCH/GARCH models (Slides-06, 07, 08). The examples in the lecture slides and tutorial exercises are useful and may give you hints for completing the assignment. In your analysis, you should exploit the models, techniques and principles covered in the lectures and tutorials. Your answers should be justified either statistically or economically.This is a group assignment. Groups have been assigned (see the spreadsheets in “assignment Groups”). All members in a group should make their best efforts to cooperate toward the completion and perfection of the assignment. The assignment should be clearly typed. Answers, results, tables and charts should be presented in the relevant places in the assignment, which should be arranged according to the order of the questions. The length of the assignment should not exceed 9 pages (exclusive of the cover page but inclusive of all text, tables and charts).SubmissionEach group must submit one hardcopy AND one electronic copy of their assignment. The electronic copy must be submitted to the course website by 11:59pm, Monday, 20 October 2014. Instructions will soon be available on the website.Each group must also submit one hardcopy of the assignment to their tutor at the beginning of the tutorial time in Week 12. The names, IDs and signatures of the group members must be on the cover page. The assignment should be properly stapled. Do not use plastic sheets or binders.All electronic copies will be checked for plagiarism on the Turnitin software. Please also see notes on Plagiarism in the course outline.DataThis assignment is based on the data in the Excel file DJdata-Assign.xls. There are three columns in the file: Date, Price and iRate, whereiRate is the interest rate on the 3-month US treasury bill (in annualised percentages),Price is the Dow Jones Composite Average (DJCA) index, andDate is the date when the Price and iRate were recorded.The observations are weekly, recorded at the end of each Wednesday. The series span from 1954-01-13 to 2012-06-27 with a total of 3051 observations.Project DescriptionSuppose that you work for an investment firm now, which is 2012-06-27. The firm intends toinvest in the US market and is interested in a portfolio that exactly resembles the compositionof the DJCA index. As a quantitative analyst in the firm, you are assigned the task of analysing the DJCA return series, defined by r =100×ln (P /P ), where P is the Price series. In particular, the risk management division of the firm has posted the followingquestions to you.1. [2 marks] What are the main characteristics of the DJCA returns? What are the maincharacteristics of the excess returns?12. [3 marks] Can you build an adequate model for the DJCA return series, whichcaptures the dependence structure in the return series?3. [1 mark] Return volatilities tend to be “persistent”. To what degree is the DJCA returnvolatility persistent?4. [1 mark] According to folklores, negative returns tend to cause more volatility thanpositive ones. Does this hold for the DJCA return series?5. [1 mark] By the risk return trade-off logic, investing in a portfolio at a more volatiletime should be rewarded by a higher expected return. Does this hold for the DJCAreturns?6. [2 marks] At the end of the sample, 2012-06-27, assuming the DJCA portfolio isvalued at $1m, what is the 1-week ahead value at risk at the 99% level?Further, your supervisor points out that there is a structural break in the volatility level withthe break point at the 821th observation (1969-10-01).You need to impress the risk management division and your supervisor by carryingout an in-depth analysis and writing a nicely-presented report that thoroughly answers thequestions. Of course, you know exactly how to find your answers and how to justify youranswers, because you did a fantastic course called Financial Econometrics back in yourUNSW days.1Here, “excess return” = “DJCA return”–“risk free interest rate”, the latter is approximated by the 3-month treasury bill rate. Pay attention to the fact that the treasury bill rate is in annual percentages.HintsRegarding VaRIn question 6, to evaluate the 1-week ahead VaR, you need y | =E(y |Ω ) and σ =Var(y |Ω ), where T =3051 or 2012-06-27, from your preferred model (see Tutorial 9, sample answers and Slides-08 page 16). Once the model is estimated, these two objects can be calculated from the estimation results.For example, suppose my model (which is not necessarily your model!) is the AR(1)-GARCHy =c +ϕ y +ε , ε |Ω ∼N(0,σ ), σ =α +α ε +β σ . Then, from EViews estimation results, I can see all parameter estimates (c,ϕ ,α ,α ,β ) as well as the residual ε , the standardised residual v , and the conditional variance σ for allt ≤T . Therefore, I will be able to compute y | =c +ϕ y and σ =α +α ε +β σ as required.Teamwork Peer Review (2 marks)The Group Assignment provides an environment for students to cooperate with one another to bring out the best of a group. Students in a group are expected to make effective and positive contributions to the project. More specifically, students are expected to (and likely expect their team members to)a)contribute positively to task planning and coordination;b)help to raise the team morale;c)attend meetings punctually and be well prepared;d)communicate/discuss with team members constructively;e)share ideas generously and be a ble t o b uild o n o ther’s i deas;f)resolve disagreements with team members respectfully;g)complete allocated tasks with quality and in time;h)provide support and help to team members;i)demonstrate good knowledge and skills for the project.At the completion of this project, each student is required to give the following confidential assessment for each teammate (including herself/himself) online:Please r ate t his p erson’s o verall c ontribution t o t he p roject.(0 = nil; 1 = very low; 2 = low; 3 = satisfactory; 4 = high; 5 = very high)Your assessment should be based on the criteria in the list a)-i) above. Each student, who completed this assessment, will receive a Teamwork mark that is a summary of the self and peer assessment. The details for this online assessment will be announced shortly.Reflection on Teamwork (Max 500 words)This is an individual written reflective piece on your experience of working in a team. It is to be submitted separately from the group assignment, with the same deadlines as the assignment.This task helps to develop important skills which employers look for in graduates, including the ability to honestly reflect on and analyse your own performance in order to improve your practice.In your reflection, you should discuss your group learning process, including your own contribution, the effectiveness of the group as a team, and what you have learned about teamwork as a result of completing the project.The following questions should help direct your reflection (you can, but do not have to, use these as your headings).YouHow d id y ou c ontribute t o t he t eamwork a nd t o t he g roup’s l earning?What were your strengths (and weaknesses) as a collaborative team member?What did you learn about yourself as a team player?The teamWhat were the strengths of your team? What worked well?What issues/problems (if any) did your team encounter? How did the team address them?How could this particular teamwork experience have been improved?Your learning about teamworkWhat did you learn about teamwork?What would you do differently or better next time you work in a team?。