ECON42115
Financial Modelling & Business Forecasting
Postgraduate Programmes 2021/22
1
SUMMATIVE ASSIGNMENT – ECON42115
Financial Modelling & Business Forecasting
Examine the causal relationships between finance and macro variables, as follows. For a
country of your choice, download data for the period from January 2000 until December 2021
on the following variables: stock market index, inflation rate, output (Industrial Production),
and interest rates. Use these data to study the relationships between stock market index,
inflation rate, output (Industrial Production), and interest rates. To do so, you need to answer
the following questions:
(i) [10 marks] Compute and discuss the descriptive statistics of your time series (in levels and
logs). Plot the series and describe patterns.
(ii) [10 marks] Report and comment on the ACF/PACF functions of the stock market index,
the inflation rate, output, and interest rate and each of their first log-differences.
(iii) [20 marks] Use appropriate Dickey–Fuller tests to test if the above four time series and
their first log-differences are non-stationary (have a unit root) or not. Explain the test
procedure, report the test statistics and the appropriate critical values (at 5% significance level)
and discuss the results.
(iv) [20 marks] Test for cointegration among the four variables using the Johansen test.
Explain the test procedure, report the test statistics and the appropriate critical values (at 5%
significance level). How many macro variables are cointegrated with stock market price?
Discuss the results.
(v) [30 marks] If you have found one or more cointegrating relations, estimate the long-run
causal relationships (i.e., the cointegrating relations) and the Vector Error Correction Model.
Otherwise, use the Box-Jenkins procedure to estimate a VAR model for the appropriately
transformed (detrended or differenced) variables. Report the results of Granger causality and
the impulse response functions. Which macro variables affect stock market prices? Discuss
the results.
(vi) [10 marks] Cite three published papers on the relationship between the stock market index
and the above macro variables and discuss/compare your results to those reported in those
three papers.
ECON42115
Financial Modelling & Business Forecasting
Postgraduate Programmes 2021/22
2
Overall word limit: 2500
SUBMISSION INSTRUCTIONS
Your completed assignment must be uploaded to Learn ULTRA
no later than 11:59am on 7th May 2022.
A penalty will be applied for work uploaded after 11:59am as detailed in the
Programme Handbook. You must leave sufficient time to fully complete the
upload process before the deadline and check that you have received a
receipt. At peak periods, it can take up to 30 minutes for a receipt to be
generated.
Assignments should be typed, using 1.5 spacing and an easy-to-read 12-point font.
Assignments and dissertations/business projects must not exceed the word count
indicated in the module handbook/assessment brief.
The word count should:
▪ Include all the text, including title, preface, introduction, in-text citations, quotations,
footnotes and any other items not specifically excluded below.
▪ Exclude diagrams, tables (including tables/lists of contents and figures), equations,
executive summary/abstract, acknowledgements, declaration, bibliography/list of
references and appendices. However, it is not appropriate to use diagrams or
tables merely as a way of circumventing the word limit. If a student uses a table or
figure as a means of presenting his/her own words, then this is included in the word
count.
Examiners will stop reading once the word limit has been reached, and work beyond
this point will not be assessed. Checks of word counts will be carried out on submitted
work, including any assignments or dissertations/business projects that appear to be
clearly over-length. Checks may take place manually and/or with the aid of the word
count provided via an electronic submission. Where a student has intentionally
misrepresented their word count, the School may treat this as an offence under
Section IV of the General Regulations of the University. Extreme cases may be viewed
as dishonest practice under Section IV, 5 (a) (x) of the General Regulations.
Very occasionally it may be appropriate to present, in an appendix, material which
does not properly belong in the main body of the assessment but which some students
wish to provide for the sake of completeness. Any appendices will not have a role in
the assessment – examiners are under no obligation to read appendices and they do
not form part of the word count. Material that students wish to be assessed should
always be included in the main body of the text.
Guidance on referencing can be found in the programme handbook and on Learn
ULTRA.
ECON42115
Financial Modelling & Business Forecasting
Postgraduate Programmes 2021/22
3
MARKING GUIDELINES
Performance in the summative assessment for this module is judged against the
following criteria:
• Relevance to question(s)
• Organisation, structure and presentation
• Depth of understanding
• Analysis and discussion
• Use of sources and referencing
• Overall conclusions
The word count should include all the text (plus endnotes and footnotes), but
exclude diagrams, tables, bibliography, references and appendices.
PLAGIARISM AND COLLUSION
Students suspected of plagiarism, either of published work or the work of other
students, or of collusion will be dealt with according to School and University
guidelines. Your assignment will be put through the plagiarism detection service.
END OF ASSESSMENT
——-
ECON42115
Financial forecasting and financial modeling
2021/22 Postgraduate Programs
1
ECON42115 SUMMATIVE ASSIGNMENT
Financial forecasting and financial modeling
Examine the following causal links between finance and macroeconomic factors. For a
country of your choice, download data for the period from January 2000 until December 2021
on the following variables: stock market index, inflation rate, output (Industrial Production),
and interest rates. Use these data to study the relationships between stock market index,
inflation rate, output (Industrial Production), and interest rates. To do so, you need to answer
the following questions:
(i) [10 marks] Compute and discuss the descriptive statistics of your time series (in levels and
logs). Plot the series and describe patterns.
(ii) [10 marks] Report and comment on the ACF/PACF functions of the stock market
