Complete Assignment 3 after you have read

Complete Assignment 3 after you have read

Complete Assignment 3 after you have read

Assignment 3

Complete
Assignment 3 after you have read the required textbook chapters and online
journal articles and worked through the online course materials for Lessons 7
to 9. Assignment 3 is worth a total of 100 marks and represents 10% of your
final grade for FNCE 405. It consists of two parts; the first part
constitutes 70% and the second part constitutes 30% of the assignment grade.

Don't use plagiarized sources. Get Your Custom Essay on
Complete Assignment 3 after you have read
Just from $10/Page
Order Essay

Part 1 (70
marks total)

Perform all of the steps listed below to complete this part,
which involves a time series data set. Use either complete sentences or
point-form answers in your responses; just be sure your meaning is clear.

1.
Go to .lbma.org.uk/pages/index.cfm?page_id=53&title=gold_fixings”>http://www.lbma.org.uk/pages/index.cfm?page_id=53&title=gold_fixingsand download the data set for the AM Gold Fix
price in US dollars from January 2, 2003, to December 30, 2005. Clean up the
data set so that it is a continuous daily time series with 759 data points.
Show the first five data points and the last five data points. (2 marks)

2.
Test for stationarity in the daily returns time
series by following the five steps outlined in Lesson 7, Note 8. Set the
correlogram to 15 lags, and look at the same time for a drift or time trend in
the time series. When performing the Augmented Dickey-Fuller test, you may
choose between three lag lengths: 5 days (business week), 10 days (business
bi-week) or 20 days (business month). Provide the logic behind your choice of
lag length for the test. State your conclusion on whether the time series is
stationary or not. If you conclude that the series is non-stationary, use
differencing to obtain a stationary series, then use the Augmented
Dickey-Fuller unit root test to see if the series is still non-stationary. If you
conclude that the series is stationary, move on to the next step. (15 marks)

3.
Divide the stationary time series into two
periods: the first period goes from January 2, 2003, to December 31, 2004, and
the second period goes from January 4, 2005, to December 30, 2005. Use the
first period as the in-sample and the second as the hold-out sample. Show the
last five data points of the in-sample. (1 mark)

4.
Use the Box-Jenkins approach in EViews to find
the model(s) that best fit the in-sample from January 2, 2003, to December 31,
2004. Make sure your analysis includes the following components:

a.
Identification: Use the correlogram option in EViews to
obtain the acf and pacf for the stationary series. Set a lag
length of 20 for the correlogram. What are the possible ARIMA models
identifiable from the acf and pacf? (5 marks)

b.
Estimation: Estimate possible ARMA models in EViews (Note
that EViews allows only 23 total ARMA terms when estimating ARMA models.) To
keep the amount of work that must be done manageable, do not estimate a model
that is larger than ARMA(11,11) and, in fact, you may elect to estimate fewer
models than p = q = 11 if you can provide a good rationale for doing so.
Show the result of ARMA(5,5). If you were to estimate all the models indicated in
the identification stage, how many models in total would you have to estimate?
(8 marks)

c.
Diagnostic testing: Copy Akaike’s
Information Criterion (AIC) and Schwarz’s Bayesian Information Criterion (SBIC)
for each of the estimated models into a table. Which model is the best one
according to the AIC? The SBIC? (15 marks)

5.
Obtain the regression results in EViews for the
best model(s) found in question 4(c) above. (Note: Since there are only
two information criteria—AIC and SBIC—there are only two “best” models.) (5
marks)

6.
Use these regression results to obtain dynamic
forecasts from the model(s) for the hold-out sample. Based on the Root Mean
Squared Error (RMSE), MAE, MAPE, Theil’s U-statistic, Bias Proportion, Variance
Proportion, and Covariance Proportion, which model produces the most accurate
dynamic forecasts? (7 marks)

7.
Use the regression results you obtained in
question 5 to obtain static forecasts from the model(s) for the hold-out
sample. Based on the Root Mean Squared Error (RMSE), MAE, MAPE, Theil’s
U-statistic, Bias Proportion, Variance Proportion, and Covariance Proportion,
which model produces the most accurate static forecasts? (7 marks)

8.
Based on the results from questions 6 and 7,
recommend which model we should use to forecast the price of gold in US
dollars. In your recommendation, take into consideration as well the principle
of parsimony. What does your recommended model tell us about the changes in
gold prices? (5 marks)

Part 2 (30
marks total)

Answer all of the questions below to complete this part. Use
only complete sentences for your responses. You will be automatically penalized
5% (out of the 30%) for point-form answers. As well, ensure that your answers
contain no spelling or grammatical errors. The marker has the discretion of
deducting up to 5% (out of the 30%) for spelling and grammatical errors.

Use the Giddy and Dufey (1975) article in the DRR to answer
the following two questions:

1.
Write a one- to two-page summary (double-spaced, 12-point Times
New Roman font, no more than 1000 words) of the Giddy and Dufey article. Omit
the section between the asterisks on p. 14 and p. 16. Include in your summary
the models, data, and methodology used in the paper, the empirical tests
performed, and the conclusions reached by the author. (15 marks)

2.
Write a one- to two-page critical review (double-spaced, 12-point
Times New Roman font, no more than 1000 words) of the Giddy and Dufey article.
Omit the section between the asterisks on p. 14 and p. 16 (“… and the
variance of the rate of change of the exchange rate.”). Base your review predominantly on concepts
from Lessons 7 to 9 and on the readings.

As before, a good starting point might be to see if Giddy and Dufey violate any
of the assumptions listed in Chapter 4 of the textbook. You may also wish to
review Box 1.4, “Points to consider when reading a published paper,” on p. 11
of the textbook. If you require more assistance on writing a critical review of
a journal article, some guidelines are available at these URLs

·

or contact the Student Support Centre for assistance. (15 marks)

 

CLICK TO ORDER A CUSTOM PAPER

We are the best paper writer / paper help in the world

 

 

 

Order your essay today and save 30% with the discount code ESSAYHELP