...(more on this later). Event Study Analysis The steps for an event study are as follows: – – – – – – – Event Definition Selection Criteria Normal and Abnormal Return Measurement Estimation Procedure Testing Procedure Empirical Results Interpretation Event Study Analysis The time line for a typical event study is shown below in event time: T0 T1 0 T2 T3 The interval T0-T1is the estimation period The interval T1-T2 is the event window Time 0 is the event date in calendar time The interval T2-T3 is the post-event window There is often a gap between the estimation and event periods Models for measuring normal performance In an event study we wish to calculate the abnormal performance associated with an event. To do so, we need a model for normal returns. – For example: Suppose a firm announces earnings and the stock price rises by 3%, but the market also went up 2% that day. How much of the 3% rise should be attributed to the announcement of earnings. • Fortunately, over short event windows (one or two days) the choice of normal return models usually has little effect on the results Statistical or economic models for normal returns? Statistical models of returns are derived purely from statistical assumptions about the behavior of returns Economic models apply restrictions to a statistical model that result from assumptions about investor behavior motivated by theory (i.e., CAPM) – If the restrictions are true, we can calculate more precise measures...
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...with sufficient knowledge of regression methods to critically evaluate and interpret empirical research. On completion of this module students should be able to: demonstrate understanding of the assumptions and properties underlying regression analysis and the principle of ‘least squares’; interpret and manipulate the coefficients of multiple regression and performance criteria; conduct diagnostic checking of the validity of regression equations coefficients; appreciate the problems of misspecification, multicollinearity, heteroscedasticity and autocorrelation. Content: 1. Simple Regression Analysis 2. Multiple Regression Analysis 3. Dummy Variables 4. Heteroscedasticity 5. Autocorrelation Main Textbook: Dougherty, C. (2011). Introduction to Econometrics, 4th edition, Oxford. 2. Module Name: Computational Finance Code: P12614 Credits: 10 Semester: Spring 2011/12 Programme classes: 12 1-2 hour lectures/workshops Aims: The module aims to describe and analyse the general finance topics and introduces students to implement basic computational approaches to financial problems using Microsoft Excel. It stresses the fundamentals of finance; provides students with a knowledge and understanding on the key finance subjects such as money market, return metric, portfolio modelling, asset pricing, etc.; and equips students with the essential techniques applied in financial calculations. Contents: 1. Lecture Topic 1: Money Market Instrument : Introduction to...
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... | |1 |Annuity |A fixed sum of money paid to someone each year, typically for the rest of their life. | |2 |Beta |The sensitivity of the asset's returns to market returns, its non-diversifiable risk, its systematic | | | |risk, or market risk. | |3 |Bonds |A bond is a negotiable certificate that acknowledges the indebtedness of the bond issuer to the holder. | |4 |Broker |A person who buys and sells goods or assets for others. | |5 |Call premium |The dollar amount that a buyer has to pay the writer (seller) for the right to buy a particular stock | |6 |Call price |The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a | | | |specified call date. | |7 |Capital gains |A profit from the sale of property or of an investment. | |8 |Capital loss |The amount by which the purchase price of an asset exceeds the selling price; the loss is realized when | | | ...
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...C, R Profitability Ratios reflect the net results of firms financing policies and operating decisions. It includes return on assets, profit margin and return on equity. A Return on Assets measures the percentage of how profitable a company's assets are, in generating revenue (Wikipedia, 2015). While a Net Profit Margin is the percentage of a company’s revenue that remains as their net income after operating expenses, interest, taxes and preferred stock dividend have been deducted to its total revenue. C Background of the Study The Philippine real estate sector is likely to remain rosy until 2016 on strong economic growth and bullish prospects of the business process outsourcing (BPO) industry, (Amojelar, 2014). According to the US-based CBRE Group, with all the gains seen across the traditional strong office and retail segments of the real estate sector, it is to be expected that the country will continuously have a robust during 2015. CRBE Philippines also doesn't see any sign of slowdown in the real estate business until 2016 mainly because a lot of companies are expanding. Despite of the increases in rental rates across all business districts, good news still remains that investors are willing to pay for the quality and value that they can get in the Philippines. Since Real Estate business is one of the most emerging industries in the country, many firms compete in this field. The top three real estate companies in the Philippines are Ayala Land, Inc., SM Prime Holdings, Inc...
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...Test of asymmetric Garch models Henri Högkulla s082880 Carl-Anton Karlsson s081760 Hanken School of Economics Department of Finance and Statistics Vaasa November 2011 Contents Abstract ...................................................................................................................................... 1 1 Introduction ............................................................................................................................. 2 2 Methodology ........................................................................................................................... 4 2.1 ARCH and GARCH ......................................................................................................... 4 2.2 EGARCH ......................................................................................................................... 4 2.3 GJR-GARCH ................................................................................................................... 5 2.4 Distributions ..................................................................................................................... 5 2.5 Information criterions ....................................................................................................... 6 3 Data ......................................................................................................................................... 7 3.1 Descriptive statistics .............................................
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...without charge from the Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract_id=158148 Predicting the Equity Premium (With Dividend Ratios)∗ Amit Goyal† Goizueta Business School at Emory and Ivo Welch‡ Yale School of Management and NBER November 21, 2002 Abstract Our paper suggests a simple recursive residuals (out-of-sample) graphical approach to evaluating the predictive power of popular equity premium and stock market time-series forecasting regressions. When applied, we find that dividend-ratios should have been known to have no predictive ability even prior to the 1990s, and that any seeming ability even then was driven by only two years, 1973 and 1974. Our paper also documents changes in the time-series processes of the dividends themselves and shows that an increasing persistence of dividend-price ratio is largely responsible for the inability of dividend ratios to predict equity premia. Cochrane (1997)’s accounting identity—that dividend ratios have to predict long-run dividend growth or stock returns— empirically holds only over horizons longer than 5–10 years. Over shorter horizons, dividend yields primarily forecast themselves. JEL Classification: G12, G14. ∗ Forthcoming: Management Science. The paper and its data is available from http://welch.som.yale.edu/. We thank Eugene Fama, Ken French, Will Goetzman, Shingo Goto, Charles Lee, Richard Roll, Pedro Santa-Clara, Eduardo Schwartz, Jay Shanken, Robert Stambaugh, and especially Luis Viceira...
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...Chapter 1 Return Calculations In this Chapter we cover asset return calculations with an emphasis on equity returns. Section 1.1 covers basic time value of money calculations. Section 1.2 covers asset return calculations, including both simple and continuously compounded returns. Section 1.3 illustrates asset return calculations using R. Updated: June 23, 2011 1.1 The Time Value of Money This section reviews basic time value of money calculations. The concepts of future value, present value and the compounding of interest are dened and discussed. 1.1.1 Future value, present value and simple interest. Consider an amount $ invested for years at a simple interest rate of per annum (where is expressed as a decimal). If compounding takes place only at the end of the year the future value after years is: = $ (1 + ) × · · · × (1 + ) = $ · (1 + ) (1.1) Over the rst year, $ grows to $ (1+ ) = $ +$ × which represents the initial principle $ plus the payment of simple interest $ × for the year. Over the second year, the new principle $ (1+ ) grows to $ (1+ )(1+ ) = $ (1 + )2 and so on. 1 2 CHAPTER 1 RETURN CALCULATIONS Example 1 Future value with simple interest. Consider putting $1000 in an interest checking account that pays a simple annual percentage rate of 3% The future value after = 1 5 and 10 years is, respectively, 1 5 10 = $1000 · (1 03)1 = $1030 = $1000 · (1 03)5 = $1159 27 = $1000 · (1 03)10 = $1343 92 Over the rst year, $30 in interest...
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...investment. This project also study the relationship between expected return, standard deviation, coefficient of variation, covariance, correlation, beta and capital asset pricing model. One of the financial objectives of business organization is to maximize returns on its investments and operations. Various components of returns make up the returns to proportional with the various types of risks borne and market conditions. Risk can be defined as the chance of financial loss in the common of basic definition. Assets having greater chances of loss are viewed as more risky than those with lesser chances of loss. While for the return obviously assess to risk on the basis of flexibility of return then we need to be certain for what return is and how to measure it. For a company, investments and shares are always being the common equity and fund for them cycling their business every day. They must have their expected return in gaining a profit and a given trust towards their clients. Investment is the application of funds with the target of attaining additional income or growth in terms of value. This project is to calculate the closing daily share prices of five companies from the main market and KLCI for year 2013. Our group has proposed five companies which are Magnum Berhad, Faber Group Berhad, Gamuda Berhad, Scientex Berhad and Public Bank Berhad. The calculation is involve of the expected return, variance, standard deviation, coefficient of variation, covariance...
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...literature on realized volatility. After presenting a general univariate framework for estimating realized volatilities, a simple discrete time model is presented in order to motivate the main results. A continuous time specification provides the theoretical foundation for the main results in this literature. Cases with and without microstructure noise are considered, and it is shown how microstructure noise can cause severe problems in terms of consistent estimation of the daily realized volatility. Independent and dependent noise processes are examined. The most important methods for providing consistent estimators are presented, and a critical exposition of different techniques is given. The finite sample properties are discussed in comparison with their asymptotic properties. A multivariate model is presented to discuss estimation of the realized covariances. Various issues relating to modelling and forecasting realized volatilities are considered. The main empirical findings using univariate and multivariate methods are summarized. Keywords Continuous time processes; Finance; Financial econometrics; Forecasting; High frequency data; Quadratic variation; Realized volatility; Risk; Trading rules. JEL Classification C13; C14; C22; C53. 1. INTRODUCTION Given the rapid growth in financial markets and the continual development of new and more complex financial instruments,...
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...Accenture (ACN) Statistical Analysis Report I. Introduction Accenture is a world leading management consulting, technology service and outsourcing company. It went public in 1998 and is listed on the New York Stock Exchange. In this report, I analyzed factors that relate to Accenture’s excess return, including the single index model (CAPM), three-factor model, and tests of the assumptions of OLS. II. Data and data description I collected monthly adjusted closing price of Accenture from July 2001(the earliest available date) to September 2014 and that of 13-week Treasury Bill, as well as Fama French Benchmark Factors (Rm-Rf, SMB, HML) of the same time period. The data description is showed in Table 2, I then tested properties of those variables. 1. Normal Distribution The test statistics of histogram presented in Table 2 follows a chi-square distribution with 9 degrees of freedom. The critical value at 5% significance level is 23.6. So the results show that Rm-Rf and SMB are normally distributed; while RACN-Rf and HML are not normally distributed. 2. Correlation (Multicollinearity) The correlation matrix presented in Table 3 shows that the excess return of Accenture is positive correlated with the three factors. Positive correlation with SMB indicates that Accenture behaves more like a small stock. The positive correlation between independent variables indicates there may be problem of multicollinearity, which need further test. III. Single Index Model (CAPM) I...
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...MSc Money, Banking and Finance 2011/2012 Econ 403 – Applied Econometrics 2 hrs 30 minutes ------------------------------------------------- Answer ALL questions from Section A (60 marks), ONE question from Section B (20 marks), and ONE question from Section C (20 marks). Please use a separate answer book for each section. Section A – ANSWER ALL QUESTIONS Question 1 (24 marks) Assess whether each of the statements below is TRUE or FALSE. Marks will be awarded only for the explanation provided. a) When a relevant variable is omitted from a multiple linear regression the OLS estimates are always biased. (4 marks) b) Absence of correlation does not mean independence. (4 marks) c) The ACF never converges if the series is non-stationary. (4 marks) d) OLS estimates of a non-stationary model are super consistent. (4 marks) e) The can be used to determine the goodness of fit in a GARCH framework. (4 marks) f) The null hypothesis for the Durbin-Watson and co-integration Durbin-Watson are similar. (4 marks) Question 2 (36 marks) a) Explain the role of intercept and slope dummy variables in linear regression models by using an example. Use diagrams to illustrate where appropriate. (12 marks) b) Explain the difference between parametric and non-parametric measures of volatility. Give an example for each. (12 marks) c)...
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...1 EFFICIENT MARKETS HYPOTHESIS Andrew W. Lo To appear in L. Blume and S. Durlauf, The New Palgrave: A Dictionary of Economics, Second Edition, 2007. New York: Palgrave McMillan. The efficient markets hypothesis (EMH) maintains that market prices fully reflect all available information. Developed independently by Paul A. Samuelson and Eugene F. Fama in the 1960s, this idea has been applied extensively to theoretical models and empirical studies of financial securities prices, generating considerable controversy as well as fundamental insights into the price-discovery process. The most enduring critique comes from psychologists and behavioural economists who argue that the EMH is based on counterfactual assumptions regarding human behaviour, that is, rationality. Recent advances in evolutionary psychology and the cognitive neurosciences may be able to reconcile the EMH with behavioural anomalies. There is an old joke, widely told among economists, about an economist strolling down the street with a companion. They come upon a $100 bill lying on the ground, and as the companion reaches down to pick it up, the economist says, ‘Don’t bother – if it were a genuine $100 bill, someone would have already picked it up’. This humorous example of economic logic gone awry is a fairly accurate rendition of the efficient markets hypothesis (EMH), one of the most hotly contested propositions in all the social sciences. It is disarmingly simple to state, has far-reaching consequences...
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...their skills of investing in such instruments. Most of the people who are lack in financial knowledge or investing skills will prefer to make investments in unit trust funds. There has abundance of benefits in unit trust and also can be advantageous to the small investors. Unit trust is an ideal way for small investors to invest for their future. Small investors are people who earn their living engaged in activities not related to the financial arena. They are aware that investing is important to them, but they lack of know-how to make the right decisions. For people who are unable or unwilling to do research and analyze investment markets and climate on their own, unit trusts is a good way to invest. In order to maintain a portfolio of stocks in the share market, a person has to keep himself up-to-date with market information and climate. For many people, this is difficult, time consuming and expensive. By investing through unit trust, they transfer the stress of investing to people who are better equipped to look after their investments. These are the professional fund manager. Unit trust can be classified by two classes which are known as a conventional funds and Shariah funds (Islamic law as revealed in the Quran and Sunnah). In Malaysia, majority of...
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...Andrey Artemenkov, The department of economic measurements, GYY artemenkov@rambler.ru Modern Portfolio theory (MPT) and Financial Economics: a theory of lesser turf?♣ “In this age, which believes that there is a short cut to everything, the greatest lesson to be learned is that the most difficult way is, in the long run the easiest.” Henry Miller “[These are colossal] disproportions that have accumulated over the last few years. This primarily concerns disproportions between the scale of financial operations and the fundamental value of assets, as well as those between the increased burden on international loans and the sources of their collateral. … In effect, our proposal implies that the audit, accounting and ratings system reform must be based on a reversion to the fundamental asset value concept. In other words, assessments of each individual business must be based on its ability to generate added value, rather than on subjective concepts. In our opinion, the economy of the future must become an economy of real values. How to achieve this is not so clear-cut. Let us think about it together.” From the Address of Vladimir Putin, Prime Minister of Russia, at the Davos Economic Forum (February, 2009) This Part analyzes the pre-analytical foundations and macro-economic impact of the Modern Portfolio Theory1 (MPT) tenets, on which much of the present Western investment theory and financial economics is erected. Our general inference is that while the former are tautological...
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... 6. Conclusion and recommendation ………………………………………….............. 8 p 7. References …………………………………………………………………………….. 9 p 8. Appendix………………………………………………………..…..............…..…....... 11 p 1. INTRODUCTION This report aspires to critically evaluate the performance of Land Securities and provide enough evidence to allow non-professional investors to understand the Company performance, the market where it operates and decide if investing in Land Securities is appropriated, considering the risk and the ideal time frame for that potential investment. 2. OVERVIEW OF LAND SECURITIES Land Securities, founded in 1944, is the biggest commercial property company in the United Kingdom. The company started with three houses in Kensington. In less than 2 decades its value on the stock market increase more than 4000%. The Company, acquired some of the...
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