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Testing whether spot or futures markets react more rapidly to news Forecasting the correlation between the stock indices of two countries. The list in box 1.1 is of course by no means exhaustive, but it hopefully gives some flavour of the usefulness of econometric tools in terms of their financial applicability. 1.2 Is financial econometrics different from 'economic econometrics' As previously stated, the tools commonly used in financial applications are fundamentally the same as those used in...

VAR estimation in EViews

By way of illustration, a VAR is estimated in order to examine whether there are lead--lag relationships for the returns to three exchange rates against the US dollar - the euro, the British pound and the Japanese yen. The data are daily and run from 7 July 2002 to 7 July 2007, giving a total of 1,827 observations. The data are contained in the Excel file 'currencies.xls'. First Create a new workfile, called 'currencies.wfT, and import the three currency series. Construct a set of continuously...

Estimating exponential smoothing models using EViews

This class of models can be easily estimated in EViews by double clicking on the desired variable in the workfile, so that the spreadsheet for that variable appears, and selecting Proc on the button bar for that variable and then Exponential Smoothing____The screen with options will appear Estimating exponential smoothing models There is a variety of smoothing methods available, including single and double, or various methods to allow for seasonality and trends in the data. Select Single...

Forecasting using ARMA models in EViews

Once a specific model order has been chosen and the model estimated for a particular set of data, it may be of interest to use the model to forecast future values of the series. Suppose that the AR 2 model selected for the house price percentage changes series were estimated using observations February 1991-December 2004, leaving 29 remaining observations to construct forecasts for and to test forecast accuracy for the period January 2005--May 2007 . Once the required model has been estimated...

Multiple regression in EViews using an APTstyle model

In the spirit of arbitrage pricing theory APT , the following example will examine regressions that seek to determine whether the monthly returns on Microsoft stock can be explained by reference to unexpected changes in a set of macroeconomic and financial variables. Open a new EViews workfile to store the data. There are 254 monthly observations in the file 'macro.xls', starting in March 1986 and ending in April 2007. There are 13 series plus a column of dates. The series in the Excel file are...

The test of significance approach

Test Rejection Region

Assume the regression equation is given by yt a 3xt ut, t 1, 2, , T. The steps involved in doing a test of significance are shown in box 2.5. Box 2.5 Conducting a test of significance 1 Estimate a, 3 and SE a , SE0 in the usual way. 2 Calculate the test statistic. This is given by the formula test statistic 3 2.30 where 3 is the value of 3 under the null hypothesis. The null hypothesis is H0 3 3 and the alternative hypothesis is H1 3 3 for a two-sided test . 3 A tabulated distribution with...

Estimation and hypothesis testing in EViews example 2 the CAPM

This exercise will estimate and test some hypotheses about the CAPM beta for several US stocks. First, Open a new workfile to accommodate monthly data commencing in January 2002 and ending in April 2007. Then import the Excel file 'capm.xls'. The file is organised by observation and contains six columns of numbers plus the dates in the first column, so in the 'Names for series or Number if named in file' box, type 6. As before, do not import the dates so the data start in cell B2. The monthly...

Simple linear regression in EViews estimation of an optimal hedge ratio

This section shows how to run a bivariate regression using EViews. The example considers the situation where an investor wishes to hedge a long position in the S amp P500 or its constituent stocks using a short position in futures contracts. Many academic studies assume that the objective of hedging is to minimise the variance of the hedged portfolio returns. If this is the case, then the appropriate hedge ratio the number of units of the futures asset to sell per unit of the spot asset held...

Isbn13 9780511398483 Isbn13 9780521873062 Isbn13 9780521694681

Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. Preface to the second edition xix 1.1 What is econometrics 1 1.2 Is financial econometrics different from 'economic econometrics 2 1.4 Returns in financial modelling 7 1.5 Steps involved in formulating an econometric model 9 1.6...