LUBS5072 Critical Skills for the Finance Professional
LUBS5072 Critical Skills for the Finance Professional
1Individual Report (30%) Supplementary Information TASK 1Step 1A list with the tickers and company names listed in FTSE are contained in the file namedFTSE100CONSTITUENTS.xlsx. Suppose that you have already downloaded the yearlydata from Yahoo finance for all the components of FTSE100 for the period 1st January 2000to 31st December 2020 with non-missing observations compared to the ^FTSE. This datasetis stored in the csv file called myreturns_assignment.csv [dataset 1]. Import this dataset.Step 2Import the dataset for the FTSE100 from the csv file called ftse.csv [dataset 2].Step 3Merge the two dataframes [dataset1 and dataset2] and process your data as follows:remove any rows with missing values and remove extreme values from theret.adjusted.prices to eliminate any errors in the data by winsorizing the data.Step 4Estimate the following variables: (a) annual excess returns as ret.adjusted.prices minusFTSE.ret.adjusted.prices (ret.adjusted.prices – FTSE.ret.adjusted.prices), and (b) annualvolatility as price.high minus price.low (price.high – price.low).Step 5Provide a short description of your sample.
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Comment on how many stocks are included inthe final sample and estimate the descriptive statistics for the excess returns, the volatilityand the volume.Step 6Write a code that will help you to identify and display to the client the following:1. the stock with the highest annual excess return2. the stock with the lowest annual volatility3. the stock with the highest annual volatility4. the stock with the highest annual volume5. the stock with the lowest annual volumeStep 7Create a dummy variable that will split the sample based on the volatility (volatility above theaverage volatility in the sample will get the value 1 – high volatility group – and 0 otherwise).Compare the excess returns across the two groups (high volatility versus low volatility).Create a dummy variable that will split the sample based on the volume (volume above theaverage volume in the total sample will get the value 1 – high liquidity group – and 0otherwise). Compare the excess returns across the two groups (high liquidity versus lowliquidity).LUBS5072 Critical Skills for the Finance Professional2Shortly discuss the findings of this analysis to the client.TASK 2Research has found that the US stock market is significantly associated with uncertainty(e.g., Arouri et al. 2016). However, little is known on how uncertainty affects the UK stockmarket. Your client needs to understand whether uncertainty affects FTSE100 returns orFTSE100 volatility (estimate volatility as FTSE.price.high minus FTSE.price.low). To this endyou are asked to investigate whether economic policy uncertainty affects FTSE100 returnsand volatility. Use EPU as a news-based measure of uncertainty to economic policyresponses. The data can be found in the file named epudata.csv.Step 1Plot FTSE100 price index, FTSE100 returns and FTSE volatility.Step 2Briefly discuss the plots.Step 3Perform regression analysis to investigate the above relationship and briefly discuss theoutput of your analysis.Check points:ü Follow the instructions above very carefully and do only what is necessary for youranalysis.ü Good layout and presentation must be demonstrated throughout.ü The code should not be displayed in the output (MS Word) of RMarkdown. Marks willbe awarded for automated processes, efficient coding and output.ü Add comments in the RMarkdown file before your code to clearly explain yourworkings.ü Any discussion regarding the results/output should be included in the report.ü Do not make any changes or formatting on the MS Word output of RMarkdown otherthan pasting your coversheet in the first page.ReferencesArouri, M., Estay, C., Rault, C., Roubaud, D. (2016) “Economic policy uncertainty and stockmarkets: Long-run evidence from the US”, Finance Research Letters 18,136-141.
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