Choose some historical time series data for a particular company or an asset class in any financial market. Conduct a time series analysis on the dataset of your choice to investigate the validity of some widely known stylised facts, e.g. Cont (2001), and discuss the implications of your results from the point of view of risk management.
- The coursework should begin with an introduction and brief literature review. As for the econometrics, you may introduce and employ any methods you think of as appropriate. In any case, you should clearly define any notations and variables you use and methodologies you make use of, and need to provide suitable references wherever necessary. You never have to investigate all stylised facts covered in lectures or in Cont (2001)’s paper. The number will not matter, although you are advised to cover at least 5 empirical properties. Your critical analyses, interpretations and discussions of your result, which are beyond what are covered in lectures (as well as any clear evidence of your further readings of the relevant literature) could be extra rewarded, provided they are done in a correct and appropriate manner. Data can be collected from DataStream or other resources available.
structure:
一、introduction
二、literature review on existing research on stylized facts
三、main body(using STATA, screenshot graph)
Brief description of your data
- Some basic time series analysis
(Some basic concepts for time series
- Expected value: E(Xt) = µ
- Variance: Var(Xt) = σ
- Autocovariance: Cov(Xt, Xt−r) =ρr
- Skewness: E((Xt − µ)/σ) Mesure of symmetry
- Kurtosis: E((Xt − µ)/σ) Measure of tailedness)
Tip: should check if the data is Stationarity by the p value(5%,10%),and use dickey fuller test, granger causality test
- Stylized fact 1+ verification (choose from below 5 stylized facts)
- Stylized fact 2+ verification
- Stylized fact 3+ verification
四、Implication
五、Conclusion
六、reference (Harvard version)
Time series data:
Use Apple company stock price data from 1990-2019
Download from yahoo finance
Stylized facts: Mandelbrot (1963), Fama (1965), etc.
- Leptokurtosis: Distribution of asset returns tend to have tails fatter than normal distributions, suggesting high possibility of extreme events.
- Time-varying volatility: Volatility of return series, which represents risk/uncertainty of investment, change over time.
- Uncorrelatedness: Autocorrelations of return series are almost non-existent, implying future returns cannot be easily linearly-predicted.
- Correlated absolute/squared returns: Absolute values and squared values of return series both exhibit significant dependence over time.
- Leverage effect: Asset volatility tend to be negatively correlated with the asset returns.
Reference
Course Readings
The following textbooks will be useful for the quantitative component. Note that our
libraries also hold copies of older editions of the textbooks listed here.
(i) Textbooks
- Brooks, C. (2014) Introductory Econometrics for Finance, 3rd ed. Cambridge:
Cambridge University Press
- Wooldridge, J. (2016) Introductory Econometrics: A Modern Approach, 6th
- Cengage Learning (Intermediate level textbook with many applications)
- Stock J. and Watson, M. (2012) Introduction to Econometrics, 3rd ed. Harlow:
Pearson Education
- Field, A. (2009) Discovering Statistics Using SPSS, 3rd ed. Sage. (Ignore the
application of SPSS)
(ii) Recommended Additional Reading
Students who need to brush up on basic statistics are directed to the many excellent
introductory statistics textbooks available in the university libraries. Two good textbooks
are listed below but you are free to consult other statistics textbooks that cover the
concepts taught. In addition, to further your understanding of econometrics, you are
strongly advised to consult the other econometric textbooks listed below.
Introductory Statistics Textbooks
- Lind, D, Marchal, W. and Wathen, S. (2013) Basic Statistics for Business and
Economics, 8th ed. New York; London: McGraw-Hill
- McClave, J. T., Benson, G. and Sincich, T. (2014) Statistics for Business and
Economics, 7th ed. Harlow: Pearson Education
Mathematics Textbooks
- Jacques I. (2015) Mathematics for Economics and Business, 8th ed. Pearson
(a good textbook to firm up on algebraic and calculus concepts with applications)
Econometrics Textbooks
- Hill R. C., Griffiths W. E. and Lim G. C. (2012) Principles of Econometrics, 4th
- Hoboken, N. J.; Chichester: Wiley.
- Adkins, L.C. and Hill, R. C. (2011) Using Stata for Principles of Econometrics,
4th ed. New York; Chichester: Wiley. (good step by step guidance on how to
perform econometric analysis in Stata)
- Gujarati D. N. and Porter, C. D. (2009) Basic Econometrics, 5th ed. Boston;
London: McGraw-Hill (Introductory level textbook)
- Baum C. F. (2006) An Introduction to Modern Econometrics Using Stata.
College Station, Tex: Stata Press (Intermediate level textbook with Stata-based
applications)
- Ramanathan, R. (2002) Introductory Econometrics with Application, 5th ed.
Mason, Ohio: South-Western/Thomson Learning (Introductory level textbook with
applications)
- Asteriou, D. and Hall, S. (2011) Applied Econometrics, 2nd ed. Basingstoke:
Palgrave Macmillan. (Introductory level textbook)
- Greene, W. H. (2012) Econometric Analysis, 7th ed. Harlow: Pearson Education
(Very good book for advanced level econometrics and requires a good knowledge of matrix algebra)tion