THE TASKS

Task 1: Download and prepare the data for analysis (15 marks)

* First, choose the leader of your team.

* Second, using the table below, identify the Data Group by the team leader's student ID number. (For example, if the team leader's student ID number is 20430066 at BU/CB/OL, then the team's Data Group is D.)

Campus Data Group

Data Period From.

Student ID number of the team leader

To

BU/CB/OL

A

31/08/2017

BU/CB/OL

30/06/2017

BU/CB/OL

30/04/2017

BU/CB/OL

31/01/2017

BU/CB/OL

BU/CB/OL

30/11/2016 30/09/2016

31/08/2022 30/06/2022 30/04/2022 31/01/2022 30/11/2021 30/09/2021

The last digit of student ID is ended by 0 or 1 The last digit of student ID is ended by 2 or 3 The last digit of student ID is ended by 4 or 5 The last digit of student ID is ended by 6 or 7 The last digit of student ID is ended by 8 The last digit of student ID is ended by 9

*Third, download the monthly data on the 4 variables listed above, for the time period corresponding to your team's Data Group.

(An example instruction on how to download data, using the hyperlinks listed above, is provided separately on the assessment page. See under Assessment 2 at LMS.)

* Fourth, get ready for analysis by arranging the 4 separately downloaded data sets into one Excel spread sheet. (As mentioned in the data-download instruction, you use only the Close price.)

* Finally, generate the following 3 additional variables within the same data sheet.

RM = RNSDQ = Return to NSDQ

RBHP = Return to BHP

RTEAM = Return to TEAM

Hints: We computed stock returns in Workshop 2 using two prices, i.e. Rt = 100*In(Pt/ Pt-1). If there are n observations on the price, then there should be n - 1 observations on the return. Note that returns are expressed in percentage, but do not include the percentage sign (%) in your data series. For example, if the return is 0.72%, you should see only 0.72, not 0.72%, in the data cell.

Below is the complete dataset:

Time	P_BHP (US$)	P_TEAM (US$)	P_NSDQ (US$)	R_BHP (%)	R_TEAM (%)	R_M (%)	R_F (%)
01/09/2017	36.16	35.15	6495.96				2.326
01/10/2017	36.56	48.37	6727.67	1.01	1.38	1.04	2.376
01/11/2017	37.07	46.69	6873.97	1.01	0.97	1.02	2.417
01/12/2017	41.03	45.52	6903.39	1.11	0.97	1.00	2.405
01/01/2018	43.73	53.99	7411.48	1.07	1.19	1.07	2.72
01/02/2018	41.48	54.29	7273.01	0.95	1.01	0.98	2.868
01/03/2018	39.63	53.92	7063.45	0.96	0.99	0.97	2.741
01/04/2018	41.70	55.98	7066.27	1.05	1.04	1.00	2.936
01/05/2018	44.41	63.79	7442.12	1.06	1.14	1.05	2.822
01/06/2018	44.61	62.52	7510.30	1.00	0.98	1.01	2.849
01/07/2018	46.62	72.41	7671.79	1.04	1.16	1.02	2.964
01/08/2018	42.85	90.01	8109.54	0.92	1.24	1.06	2.853
01/09/2018	44.46	96.14	8046.35	1.04	1.07	0.99	3.056
01/10/2018	41.20	75.91	7305.90	0.93	0.79	0.91	3.159
01/11/2018	39.57	85.94	7330.54	0.96	1.13	1.00	3.013
01/12/2018	43.08	88.98	6635.28	1.09	1.04	0.91	2.686
01/01/2019	45.66	98.40	7281.74	1.06	1.11	1.10	2.635
01/02/2019	47.19	107.48	7532.53	1.03	1.09	1.03	2.711
01/03/2019	48.77	112.39	7729.32	1.03	1.05	1.03	2.414
01/04/2019	47.23	110.15	8095.39	0.97	0.98	1.05	2.509
01/05/2019	46.31	125.88	7453.15	0.98	1.14	0.92	2.142
01/06/2019	51.84	130.84	8006.24	1.12	1.04	1.07	2
01/07/2019	49.00	140.12	8175.42	0.95	1.07	1.02	2.021
01/08/2019	43.85	134.51	7962.88	0.89	0.96	0.97	1.506
01/09/2019	44.05	125.44	7999.34	1.00	0.93	1.00	1.675
01/10/2019	43.63	120.79	8292.36	0.99	0.96	1.04	1.691
01/11/2019	45.97	127.11	8665.47	1.05	1.05	1.04	1.776
01/12/2019	48.80	120.34	8972.60	1.06	0.95	1.04	1.919
01/01/2020	45.59	147.00	9150.94	0.93	1.22	1.02	1.52
01/02/2020	38.64	144.96	8567.37	0.85	0.99	0.94	1.127
01/03/2020	32.73	137.26	7700.10	0.85	0.95	0.90	0.698
01/04/2020	36.29	155.49	8889.55	1.11	1.13	1.15	0.622
01/05/2020	42.02	185.30	9489.87	1.16	1.19	1.07	0.648
01/06/2020	44.36	180.27	10058.77	1.06	0.97	1.06	0.653
01/07/2020	47.14	176.65	10745.27	1.06	0.98	1.07	0.536
01/08/2020	49.12	191.76	11775.46	1.04	1.09	1.10	0.693
01/09/2020	46.13	181.79	11167.51	0.94	0.95	0.95	0.677
01/10/2020	42.92	191.62	10911.59	0.93	1.05	0.98	0.86
01/11/2020	49.77	225.05	12198.74	1.16	1.17	1.12	0.844
01/12/2020	58.29	233.87	12888.28	1.17	1.04	1.06	0.917
01/01/2021	59.57	231.13	13070.69	1.02	0.99	1.01	1.093
01/02/2021	67.72	237.70	13192.35	1.14	1.03	1.01	1.46
01/03/2021	61.90	210.76	13246.87	0.91	0.89	1.00	1.746
01/04/2021	64.91	237.56	13962.68	1.05	1.13	1.05	1.631
01/05/2021	66.11	233.28	13748.74	1.02	0.98	0.98	1.581
01/06/2021	64.97	256.86	14503.95	0.98	1.10	1.05	1.443
01/07/2021	70.08	325.12	14672.68	1.08	1.27	1.01	1.239
01/08/2021	59.00	367.06	15259.24	0.84	1.13	1.04	1.304
01/09/2021	47.74	391.42	14448.58	0.81	1.07	0.95	1.529
01/10/2021	48.92	458.13	15498.39	1.02	1.17	1.07	1.557
01/11/2021	50.12	376.32	15537.69	1.02	0.82	1.00	1.443
01/12/2021	53.84	381.29	15644.97	1.07	1.01	1.01	1.512
01/01/2022	56.74	324.34	14239.88	1.05	0.85	0.91	1.782
01/02/2022	60.47	305.72	13751.40	1.07	0.94	0.97	1.839
01/03/2022	68.91	293.83	14220.52	1.14	0.96	1.03	2.327
01/04/2022	59.75	224.83	12334.64	0.87	0.77	0.87	2.887
01/05/2022	63.03	177.32	12081.39	1.05	0.79	0.98	2.844
01/06/2022	56.18	187.40	11028.74	0.89	1.06	0.91	2.972
01/07/2022	55.04	209.32	12390.69	0.98	1.12	1.12	2.642
01/08/2022	54.89	247.66	11816.20	1.00	1.18	0.95	3.133

Task 2: Hypothesis testing of means and variance equality (35 marks) (i) Perform and report the Jarque-Berra test of normally distributed returns for each of the two stocks, RBHP and RTEAM. Given your test results, what do you infer about the distribution of returns to each company's stock? (ii) Test the hypothesis that the average return on BHP is different from 3 percent at the 5% level of significance. Make sure you present the test step by step leading to the conclusion, explaining which test statistic you use to perform this hypothesis test and why. [Hint: Hypothesis test about a population mean] (iii) Before investing in one of the two stocks, we would like to compare the risks associated with the two stocks. For this comparison, perform and present an appropriate hypothesis test at the 5% level of significance, and interpret your result. [Hint: Hypothesis test about homoskedasticity] (iv) We would also like to check whether both stocks have the same return on average. Using the confidence interval approach, perform and present an appropriate hypothesis test at the 5% level of significance, and interpret your result. Which stock would you prefer and why? [Hint: Hypothesis test about two population means.