Econometric Methods ECO2EME2 Semester 1, 2013 Assignment 1 This project is worth 15% of the total mark and should be handed in either to your tutor in your lab class or to the assignment box on the second floor of the Donald Whitehead Building by 4pm on April 19, 2013 (Week 6). Clearly write your lecturer’s name, your tutor’s name and indicate the tutorial class that you belong to. Late submissions will be penalized and no extensions will be given. You are welcome to work together on the assignment. However, all Eviews work and writing up should be done individually by each student. Plagiarism will be penalized according to University Policy. The lecturer and tutors cannot help you on any aspect of the project. The only questions that are permitted are regarding clarification of the content and these should be directed to the lecturer only. All answers should be typed or neatly handwritten and double-spaced. Answers to “Explain”, or “interpret” type questions should be concise (no more than 0.5 A4 double-spaced page). Eviews output should be attached as an appendix. In conducting statistical tests throughout, clearly state all relevant information, such as the null and alternative hypotheses, the distribution you use, the level of significance, the decision rule (critical value or p-value). Each assignment should be signed in the student’s handwriting. This assignment is largely based on questions 2.10 and 3.7 in Hill et al.Background The capital asset pricing model (CAPM) is an important model in the field of finance. It explains variations in the rate of return on a security as a function of the rate of return on a portfolio consisting of all publicly traded stocks, which is called the market portfolio. Generally the rate of return on any investment is measured relative to its opportunity cost, which is the return on a risk free asset. The resulting difference is called the risk premium, since it is the reward or...
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