**Assignment 1**

**words 1000 + excel + eviews**

**Econometric Methods FIN5EME**

This assignment is worth 20% of the total mark and should be submitted by Sunday, 15 April 2018, 11:00 pm, using the electronic submission facility available at the LMS.

This is an individual assignment. Plagiarism will be dealt with according to the University policy. Members of the teaching staff are not allowed to help on any aspect of the assignment, and will not answer the questions directly related to the assignment unless they are for clarification of the questions. Late submission will be penalised with 2% (two percent) per any extra day delay after the submission date. Submission of special consideration applications for your assignment should be made online accordingly to the new policy. For more information, refer to https://policies.latrobe.edu.au/document/view.php?id=205.

Suppose you are a quantitative equity analyst working for an investment bank based in New York. Your team manager is responsible for the local US equity portfolio performance. There are ten NYSE equity securities with significant holdings in your investment bank’s portfolio. Your manager has given you the assignment to analyse the historical performance of one of these ten blue-chip stocks. You need to utilise few of the most prominent empirical asset pricing models - the three-factor Fama-French model (Fama and French, 1993); and a newly- developed empirical asset model by Fama and French five-factor (Fama and French, 2015).

Your manager has asked that each team member is to compare the historical performance of the assigned to you particular blue-chip stock by using regression analysis.

The period is set to 20 in a random way which will be defined below. Historical time series of closing prices end-of-the-month prices of your stock, excess market returns and popular risk factors data for the period from January 1964 to December 2017 are provided to you. The data are saved in the Excel spreadsheet titled ‘FIN5EME-SEM1-2018_Assignment_1_DATA’ on the subject’s LMS portal.

The first sheet of this Excel spreadsheet is titled NYSE Stock Prices’. It contains historical monthly closing prices for ten blue cheap stocks listed on the NYSE. You are assigned to a particular blue-chip stock based on the last digit of your student ID number. For example, if the last digit of your ID is ‘1’, you should use the Caterpillar Inc. (CAT) stock data series ‘1’ which is in column C.

The second sheet of the Excel spreadsheet is titled ‘Market Index_Factors_RF Rate’. It contains the market index data, Fama-French five risk factors and, the risk-free rate. More specifically these are:

1) Excess return on the market (Rm-Rf) risk factor;

2) Small Minus Big (SMB) risk factor;

3) High Minus Low (HML) risk factor;

4) Robust Minus Weak (RMW) risk factor;

5) Conservative Minus Aggressive (CMA) risk factor; plus

6) The risk-free (RF) rate measured as the 1-month US T-Bill return.

Recall that for your assignment you have to consider 240 months (20 years) of data. The full data set of 648 observations is split into ten-time sub-periods. You are assigned to a particular sub-period which corresponds to the second-last digit of your student ID number. For example, if your second last digit is ‘3’, you should perform an empirical analysis from January 1976 (01/1976) till December 1995 (12/1995), that is, the data segment for the period of 240 monthly observations is set in column ‘E’ and starts from row 147 and finishes at row 386. In a report, you should provide concise and relevant answers to all questions in Part A and Part B below and the corresponding Excel and Eviews outputs. This report does not need to follow a formal report format.

In conducting statistical tests throughout, state all relevant information, such as the null and alternative hypotheses, the distribution used , the level of significance and the decision rule (critical value or p-value).

The report should be typed on size A4 pages and text should be double-spaced and in ‘Times New Roman’ font.