Assignment:
For this assignment you must complete either Project A or Project B.
Project A:
To complete this assignment, you will need the returns of the mutual fund # and the factors in the Dataset_#mutual.xls. The variable names and the descriptions of the variables are as follows:
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Variable Name
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Descriptions
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MutualFund1_#_ret
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Returns of the mutual fund 1
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MutualFund2_#_ret
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Returns of the mutual fund 2
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CRSP index
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Market Index
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1-month T-Bill
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Risk free rate
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ExRm
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CRSP index minus 1-month T-Bill
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SMB
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Small (market capitalization) minus big factor
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HML
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High (book-to-market ratio) minus low factor
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MoM
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Momentum factor (long prior-month winners and short prior-month losers)
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TradedLIQ
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Traded liquidity factor
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Question: (a). Estimate an appropriate CAPM model describing the return of the mutual funds as a function of some or all factors above: CRSP index, 1-month T-Bill , ExRm , SMB , HML , MoM and TradedLIQ. Carry out and report the necessary statistical tests to justify the choice of your specification. Discuss any found issues with respect to omitted variable bias.
(b). Compare the performances of the two funds and the exposure of the portfolios to different risk factors by comparing relevant coefficients (such as the intercept and slopes) of the models through appropriate tests.
The following references will be useful when you interpret and compare the coefficients. Fama, Eugene F.; French, Kenneth R. (1993). "Common Risk Factors in the Returns on Stocks and Bonds". Journal of Financial Economics 33 (1): 3-56
Fama, Eugene F.; French, Kenneth R. (1992). "The Cross-Section of Expected Stock Returns". Journal of Finance 47 (2)
Pastor, Lubos & Stambaugh, Robert F., 2003. "Liquidity Risk and Expected Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 111(3)
End of Project A
Project B:
In this project you will estimate the demand for Cod (a saltwater fish). To complete this assignment, you will use the 300 weekly observations on the quantity of Cod purchased, the price of Cod, the price of Chicken, the price of Beef, Weekly Income, the average body mass index (BMI), and the average water temperature in the North Atlantic Ocean (where Cod are cultivated). You will find these 300 observations in the Dataset_#fish.xls file.
Question:
(a) Produce a scatterplot of price and quantity demanded of Cod. Set aside the variable "average water temperature." Estimate the household demand function for Cod as a function of the price of Cod, Weekly Income, the price of Beef, and some or all of the other provided variables. Carry out and report the necessary statistical tests to choose your specification. Report the estimated own price elasticity, estimated income elasticity of demand, and the cross-price elasticity of demand with Beef. Discuss any found issues with respect to omitted variable bias.
(b) Suppose the price of Cod is determined by simultaneous solution of the market supply and demand of Cod. Discuss how this is problematic for your estimate of the own price of elasticity for Cod. Use the variable "average water temperature" to obtain a new estimate of the own price elasticity of Cod. Evaluate whether "average water temperature" is an appropriate instrument.
Overall word limit, 1000 words maximum.
The word count should:
Include all the text, including title, preface, introduction, in-text citations, quotations, footnotes and any other item 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 overlength. 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.
Attachment:- Mutual Dataset.rar