Question 1. Bitcoin Price [15 points] The purpose of assignment 1 is to understand the Bitcoin price. I provide you the data of Bitcoin price and stock market and ask you to compare them. I break down the questions into several small parts so that you can easily tackle them one by one. You can use whatever tools you feel comfortable to finish the question. a) use the Bitcoin daily price data of 1/2014 - 12/2022 from Coindesk.com (bitcoin_price.csv). Plot the Bitcoin price over time. Comment on its price pattern. [2 points] b) calculate the daily returns of Bitcoin (in percentage) and plot them over time. Comment on the pattern. [2 points] c) calculate and report summary statistics (mean, median, and standard deviation) of the daily returns of Bitcoin. [2 point] d) use S&P 500 daily index of 1/2014 - 12/2022 from Yahoo finance (sp500_index.csv). Use the "adjusted close price" to calculate the daily returns of S&P 500 and plot them over time. Report summary statistics (mean, median, and standard deviation) for the return series. [2 point] e) compare returns of the stock market to returns of Bitcoin based on the figures and summary statistics you get above, what are the main differences between the stock market and Bitcoin? [2 points] f) hedging is an important concept in finance. Investors use one asset to hedge another one when these two assets move in the opposite direction. There are debates on whether Bitcoin is a good asset to hedge the stock market during the bad time. This is very relevant because the COVID-19 had a big impact on the financial markets. Plot both daily stock returns and Bitcoin returns from February 1, 2020 to December, 2022 in one figure. Besides, calculate the correlation coefficient between daily stock returns and Bitcoin returns from February 1, 2020 to December, 2022. Do these two assets move in different directions or they move together? Is Bitcoin a good asset class for hedging stock market? [5 points] g) (Bonus, optional) use daily returns of Bitcoin and run the following regressions: BTC Rett = Const. + BBTCRett-1 + e BTCRet = Const. + BBTCRett-1 + B2BTC Rett-2 + e BTCRett = Const. + BBTCRett-1 + B2BTCRett-2 + B3BTCRett-3 + e (1) (2) (3) BTCRet = Const. + BBTCRet-1 + BTCRt-2 + 3 BTCRtt-3 + B4BTCRet+-4 + e (4) BTC Rett = Const. + BBTCRett-1 + B2BTCRett-2 + B3BTCRet-3 + B4BTCRett-4 + B5BT CRett-5 +e (5)