Draft Assessment Brief – Postgraduate

Programme: MSc International Finance and Investment

Module Code: AF7004

Module Title: Financial Econometrics and Forecasting I

Distributed on: Will be announced on Blackboard

Submission Time
Thursday 20th January 2022. Time: 11am
and Date:

Word Limit: 3,000 Words

Weighting This coursework accounts for 100% of the total mark for this module
Electronic Management of Assessment (EMA): This assignment should be
Submission of
submitted online via Turnitin by the given deadline. You will find a Turnitin link on the
Assessment
module’s eLP site.

It is your responsibility to ensure that your assignment arrives before the

submission deadline stated above. See the University policy on late submission
of work (the relevant extract is set out below).

Instructions on AF7004 coursework assignment:

There are three sections in this coursework assignment and you are required to
answer all questions.

Section A (30 marks)

Construct a portfolio of stocks from the US market and using EViews analyse its
performance based on the estimates from the Fama – French (1992, 1993) and
Carhart (1997) models.

You are required to answer the two questions listed below. Please follow the
instructions in these questions.

Requirements:

1) Select 10 stocks listed on the US market and explain your choice. You may
apply such selection criteria as market indicators (P/E, P/BV, DY ratios etc.) or
any other selection rule, which you can reasonably justify. The period of
analysis should be the last full 10 calendar years from January 2011 to

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Draft Assessment Brief – Postgraduate
December 2020 and the data frequency should be monthly. Download the
stock price data from Bloomberg and construct a portfolio from your stocks.
Calculate the monthly returns of this portfolio in the entire 10-year period:
2011-2020.

Using Eviews perform estimation of parameters of Fama – French and Carhart

models in the entire sample (10 years) covering 120 monthly observations.
The data for the Fama – French and Carhart models factors for the US market
can be found at Prof Kenneth French’s website using the following link:

https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

The three Fama and French (1992,1996) factors RmRf, SMB, HML can be
found in the .csv file under the “Fama/French 3 Factors” and the Carhart’s
(1997) MOM factor can be found in the .csv file under “Sorts Involving Prior
Returns” “Momentum Factor Mom”.

Divide the whole sample into 10 annual periods and investigate how the
estimation results change in these sub-samples in case of your portfolio.

Discuss the econometric issues, which are related to your estimations.

(15 marks, 300 words approx.)

2) Discuss your estimation results in terms of the evaluation of your portfolio

performance in the whole period and in all 10 annual sub-periods. Analyse the
existence of small stocks effect, value premium effect and momentum effect in
your portfolio and explain your results in line with the asset pricing theories.
(15 marks, 700 words approx.)

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Draft Assessment Brief – Postgraduate

Section B (30 marks)

Using the data from the US stock market, analyse the extent of the intervalling effect
in the estimation of stocks’ beta (β) parameters.

You are required to answer the two questions listed below. Please follow the
instructions in these questions.

Requirements:

3) Select 15 companies from the US market and download their stock price data
from Bloomberg. The sample period should include the last full 5 calendar
years: from 2016 to 2020. Your selection should cover companies of different
sizes, i.e. 5 large stocks, 5 medium size stocks and 5 small stocks. Discuss
briefly the stocks which you have chosen and then use the CAPM model (in
the market model version, i.e. without a deduction of the risk free rate) to
estimate in EViews their betas (β) for daily and monthly frequency data.
Discuss the econometric issues, which are related to your estimations.
(20 marks, 200 words approx.)

4) Summarize and discuss your findings about the extent of the intervalling effect
in the estimation of the beta (β) parameter in case of all your 15 stocks and
discuss any patterns that you found across your results from the point of view
of the differences in daily and monthly beta (β) estimates and the stocks size.
(10 marks, 800 words approx.)

Section C (40 marks, 1000 words)

Using the data in the excel file “Panel Data” uploaded on the modules Blackboard
site, identify and discuss the determinants of capital structure of the selected firms.
The file is uploaded under the “Assessment and Submission folder of the module’s
Blackboard Site”. The file consists of following firm-specific factors: liquidity (nwc),
risk (beta), dividend payment- pay dividend or not (dividend), firm size(size), and

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Draft Assessment Brief – Postgraduate
capital structure (lev). The “dividend” variable is a binary variable which takes a value
of 1 if the firm pays dividend and 0 if the firm does not pay the dividend. The data is
already in the panel data format.

Requirements:

1) Upload the data in Eviews and estimate the appropriate panel data model by
performing the required tests to identify the determinants of the capital
structure of firms.
2) Clearly explain and discuss the model results

Late submission of work

Where coursework is submitted without approval, after the published hand-in deadline, the following
penalties will apply.

For coursework submitted up to 1 working day (24 hours) after the published hand-in deadline without
approval, 10% of the total marks available for the assessment shall be deducted from the
assessment mark.

For clarity: a late piece of work that would have scored 65%, 55% or 45% had it been handed in on
time will be awarded 55%, 45% or 35% respectively as 10% of the total available marks will have been
deducted.

Coursework submitted more than 1 working day (24 hours) after the published hand-in deadline
without approval will be regarded as not having been completed. A mark of zero will be awarded for
the assessment and the module will be failed, irrespective of the overall module mark.

For clarity: if the original hand-in time on working day A is 12noon the 24 hour late submission
allowance will end at 12noon on working day B.

The Penalty does not apply to Pass/Fail Modules, i.e. there will be no penalty for late submission if
assessments on Pass/Fail are submitted up to 1 working day (24 hours) after the published hand-in
deadline.

These provisions apply to all assessments, including those assessed on a Pass/Fail basis.

Word limits and penalties

If the assignment is within +10% of the stated word limit no penalty will apply.

The word count is to be declared on the front page of your assignment and the assignment cover
sheet. The word count does not include:

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Draft Assessment Brief – Postgraduate
• Title and
• Reference list • Appendices
Contents page • Appropriate tables,
• Quotes from figures and
• Glossary • Bibliography interviews and illustrations
focus groups.

Please note, in text citations [e.g. (Smith, 2011)] and direct secondary quotations [e.g. “dib-dab
nonsense analysis” (Smith, 2011 p.123)] are INCLUDED in the word count.

If this word count is falsified, students are reminded that under ARNA page 30 Section 3.4 this will be
regarded as academic misconduct.

If the word limit of the full assignment exceeds the +10% limit, 10% of the mark provisionally awarded
to the assignment will be deducted. For example: if the assignment is worth 70 marks but is above the
word limit by more than 10%, a penalty of 7 marks will be imposed, giving a final mark of 63.

Students must retain an electronic copy of this assignment (including ALL appendices) and it
must be made available within 24hours of them requesting it be submitted.

Note: For those assessments or partial assessments based on calculation, multiple choice etc.,
marks will be gained on an accumulative basis. In these cases, marks allocated to each section will
be made clear.

Time limits and penalties for presentations

The time allocated for the presentation must be adhered. At the end of this time, the presentation will
be stopped and will be marked based on what has been delivered within the time limit.

Academic Misconduct

The Assessment Regulations for Northumbria Awards (ARNA) contain the Regulations and
procedures applying to cheating, plagiarism and other forms of academic misconduct.

The full policy is available at: http://www.northumbria.ac.uk/sd/central/ar/qualitysupport/asspolicies/

You are reminded that plagiarism, collusion and other forms of academic misconduct as referred to in
the Academic Misconduct procedure of the assessment regulations are taken very seriously by
Newcastle Business School. Assignments in which evidence of plagiarism or other forms of academic
misconduct is found may receive a mark of zero.

Note: Students must retain an electronic copy of this assignment and it must be made available
within 24 hours of them requesting it be submitted.

Mapping to Programme Goals and Objectives:

This assessment will contribute directly to the following Postgraduate programme goals and
objectives.

Goal One: Be independent, reflective critical thinkers

x 1. Demonstrate awareness of their personal strengths and weaknesses through critical

reflective practice.
x 2. Understand and challenge personal patterns of thinking and behaving.

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Draft Assessment Brief – Postgraduate

Goal Two: Be culturally and ethically aware

1. Demonstrate their ability to work in diverse groups and teams.

x 2. Reflect on their own ethical values.

Goal Three: Have developed leadership and management capability

1. Demonstrate their personal contribution to team effectiveness.

x 2. Communicate complex issues effectively.

x 3. Demonstrate decision making and problem solving skills.

4. Carry out presentations and lead discussions.

Goal Four: Have developed and applied knowledge of international business and management
theory

x 1. Acquire, interpret and apply knowledge of international business, management and

organisational functions.

Goal Five: Have developed a range of research skills and project capabilities

x 1. Plan and complete a major individual piece of research on a contemporary business,

management or leadership topic of their choice.
x 2. Demonstrate skills of analysis and synthesis in the application of research methods to the
exploration of contemporary business issues.

Goal Six: Have developed specialist knowledge about the theory and practice of your
programme of study

x 1. Demonstrate specialist functional knowledge in relation to your programme of study.

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Draft Assessment Brief – Postgraduate
Module Specific Assessment Criteria

Scales
Q Prgm goals and 0-39% 40-49% 50-59% 60-69% 70-79% Exceeds 80-89% Exceeds 90-100%
# Objectives Standard Not Met 1 Standard Not Met Meets Standard 1 Meets Standard 2 Standard 1 Standard 2 Exceeds Standard
2 3
1 1.1,1.2,2.2,3.2,3.3 Lack or very weak Insufficient Reasonable Good Very good Excellent Outstanding
4.1 5.1,5.2 understanding of understanding of understanding of understanding of understanding of understanding of understanding of
the econometric the econometric the econometric the econometric the econometric the econometric the econometric
issues related to issues related to issues related to issues related to issues related to issues related to issues related to
the estimation of the estimation of the estimation of the estimation of the estimation of the estimation of the estimation of
parameters of the parameters of the parameters of the parameters of the parameters of the parameters of the parameters of the
Fama-French and Fama-French and Fama-French and Fama-French and Fama-French and Fama-French and Fama-French and
Carhart models. Carhart models. Carhart models. Carhart models. Carhart models. Carhart models. Carhart models.

2 1.1,1.2,2.2,3.2,3.3 Lack of any Excellent, Outstanding,

Very good and
4.1 5.1,5.2 presentation of comprehensive comprehensive
Sufficient Good and detailed
estimation results Insufficient and detailed and very detailed
presentation of detailed presentation of
or very limited / presentation of presentation of presentation of
estimation presentation of estimation
inadequate estimation estimation estimation
results. estimation results. Detailed
presentation of results. Weak results. Detailed results. Very
Reasonably good results. Good and
some estimations description of and detailed and
description of description of comprehensive
of models empirical findings comprehensive comprehensive
empirical findings empirical findings description of
parameters. Very from the description of description of
from the from the empirical findings
poor description of application of the empirical findings empirical findings
application of the application of the from the
empirical findings Fama-French and from the from the
Fama-French and Fama-French and application of the
from the application Carhart models application of the application of the
Carhart models Carhart models Fama-French and
of the Fama-French as econometric Fama-French and Fama-French and
as econometric as econometric Carhart models
and Carhart models methods. Carhart models Carhart models
methods. methods. as econometric
as econometric as econometric as econometric
methods.
methods. methods. methods.
3 1.1,1.2,2.2,3.2,3.3 Excellent and Outstanding and
Very poor or no Good and clear Very good and
4.1 5.1,5.2 Weak explanation Good explanation very clear very clear
explanation of explanation of clear explanation
of econometric of econometric explanation of explanation of
econometric issues econometric of econometric
issues (such as issues (such as econometric econometric
(such as issues (such as issues (such as
heteroscedasticity heteroscedasticity issues (such as issues (such as
heteroscedasticity heteroscedasticity heteroscedasticity
of the error term of the error term heteroscedasticity heteroscedasticity
of the error term of the error term of the error term
etc.) based on the etc.) based on the of the error term of the error term
etc.) based on the etc.) based on the etc.) based on the
empirical work empirical work etc.) based on the etc.) based on the
empirical work empirical work empirical work
carried out. carried out. empirical work empirical work
carried out. carried out. carried out.
carried out. carried out.

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Draft Assessment Brief – Postgraduate
4 1.1,1.2,2.2,3.2,3.3 Lack of any Outstanding and
Insufficient Sufficient Good Very good Excellent
4.1 5.1,5.2 interpretation or fully complete
interpretation of interpretation of interpretation of interpretation of interpretation of
very limited interpretation of
the presented the presented the presented the presented the presented
interpretation of the the presented
results about the results about the results about the results about the results about the
presented results results about the
extent of the beta extent of the beta extent of the beta extent of the beta extent of the beta
about the extent of extent of the beta
intervalling effects intervalling effects intervalling effects intervalling effects intervalling effects
the beta intervalling intervalling effects
and in panel data and in panel data and in panel data and in panel data and in panel data
effects and in panel and in panel data
models models models models models
data models. models

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