SUMMATIVE ASSIGNMENT
Answer ALL questions
Download the daily data from Refinitiv Datastream in WRDS (Wharton Research Data Services) for the period between 1/1/2012 and 30/11/2022 for the following:
-the share price of a company that has been randomly assigned to you*,
-the S&P total market index (proxy for the market portfolio), and
-the U.S. one-month treasury bill (proxy for the risk-free rate of return).
* N.B. You will be provided with the name of the company assigned to you on the module’s Blackboard site.
a)Calculate the daily returns for your company and explain the method you use. Graph the returns, provide the descriptive statistics, and discuss your results. (20 marks)
b)Carry out an augmented Dickey-Fuller (ADF) test for your company price and return. Comment on the testing procedure and the importance of your results.
(20 marks)
c)Following the Box-Jenkins methodology, identify an appropriate ARIMA(p,d,q) model for your company’s return. Provide a clear explanation of the identification, estimation, and diagnostic stages of the modelling process.
(20 marks)
d)According to the market model, the excess return on a stock depends on the excess return on the market portfolio and the extent of the stock’s responsiveness as measured by its beta, i.e.,
