# Quantitative Finance

Exercise 1: CAPM model [50 marks]
You will find on Blackboard a data file named “2020-21_Fama French5Factors_XXX.xlsx” for you to use (more details will be posted on Blackboard early in the semester). It contains data on the CAPM and the Fama-French tree- and five-factor models, which have been very successful in finance. The main variable of interest is the return on a portfolio of stocks (r_ portfolio) , which has been assigned to you to study. The returns on a risk-free asset (r_rf) and the market portfolio (r_mktport), which is composed of the stocks in NYSE, AMEX, and NASDAQ), can be found in the same file. It also includes the other four factors SMB, HML, RMW and CMA. In solving this exercise, you should to show understanding of these three models. If they are new to you, spend some time reviewing them.

•    Our main interest is to evaluate the performance of your stock. Obtain the scatter plot of this stock’s risk premium against the market risk premium. Comment on it.
•    Estimate the Capital Asset Pricing Model and interpret the coefficients. Is the stock aggressive or defensive? Test the significance of the coefficients at the 5% level.
•    From the remaining variables, add two factors to the model in order to estimate the so called Fama-French 3-factor model. Are these additional factors statistically significant?
•    Add two more factors to the model in order to estimate the so-called Fama-French 5-factor model. Are these additional factors statistically significant?
•    Report the coefficient of determination (??) and comment on the goodness of fit of each regression. Test the residuals of the regressions for violation of the CLRM assumptions and report any violations. Visit https://en.wikipedia.org/wiki/Quantitative_analysis_(finance) for more details.

Don't use plagiarized sources. Get Your Custom Essay on
Quantitative Finance
GET AN ESSAY WRITTEN FOR YOU FROM AS LOW AS \$13/PAGE

Exercise 2: ARMA model [25 marks]
The file “2020-09_univariatemodels_XXX.xlsx” is available on blackboard. It contains a financial time series, which we will refer to as yt.

•    Test whether there is a unit root in the time series yt.
•    Estimate the AR(p) model for p=1,2,3,4, as well as the ARMA(1,1), ARMA(2,1), ARMA(1,2) and ARMA(2,2) models. Report the results in a table with one column for each model. For each model, include in the table the Akaike and Bayes Information Criteria (IC), as well as the Ljung-Box test of white noise of the first four autocorrelations.
•    Compare the performance of the different models. Using both the Akaike and Schwarz IC, select the best of these AR(p) and ARMA(p,q) models that describes variable yt. What is the conclusion of the Ljung-Box test?
•    At this point, you may also want to consider whether to estimate any alternative model.

Exercise 3: GARCH Model Selection [25 marks]
Make use of the same datafile than in Exercise 2.

•    Estimate the ARCH(1), GARCH(1,1), EGARCH(1,1) and ARCH-M(1,1) models. Assume that the mean equation is best modelled as having an intercept only.
•    Summarise the results, including IC, in a table. Select the best model based on the IC and any relevant hypothesis test.
•    At this point, you can propose other model(s)/specification(s), which, in your view, would fit the data better that the ones you have estimated before.

Order NOW For A 10% Discount!
Pages (550 words)
Approximate price: -

Plagiarism Free Papers

All papers are written by the best professional writers to ensure 100% originality. We always provide plagiarism reports whenever we deliver completed papers.

Free Revisions

All papers by Grand Paper Writers are completed and submitted on time. This timely delivery of papers gives you time to go through the paper before the official deadline.

Title-page

As an additional service, we will provide a title page that precedes the contents of your paper. Here, you will provide your personal details.

Bibliography

We also ensure that we provide an extra page for the references or bibliographies following referencing rules.

Originality & Security

At Grandpaperwriters.com, we guarantee students for the provision of security and original work. All your personal information is handled with confidentiality and is not shared with third parties. Additionally, we ensure that we provide original content with accompanying plagiarism reports to show originality.

Our customer support team is always available 24/7 to provide instant responses to any queries raised by students.

Try it now!

## Calculate the price of your order

We'll send you the first draft for approval by at
Total price:
\$0.00

How it works?

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Our Services

Grandpaperwriters.com has the best professional essay writers for quality services.

## Flexible Pricing

Here, a Grandpaperwriters.com, we do not compromise on the time of our clients. We always deliver all completed papers on or before the deadlines.