Final Project
The final project is another important component of this course. For this final project, you
must pick an empirical finance topic, gather the required data, specify your methodology,
perform quantitative analyses on the data and interpret the results of these analyses, and
formulate a conclusion regarding the issue at hand. Marks on the final project will be based
on modelling (30%), quantitative (40%), and presentation (30%) skills demonstrated.
Project topics
You may choose your own topic for your project, but you may also consider choosing a
topic from the following list of topics:
Model and test weak-form information efficiency in one or more Canadian stock markets.
1.
Test to determine which model—the Capital Asset Pricing Model (CAPM) or Arbitrage
Pricing Theory (APT)—is superior for determining returns on risky assets in Canadian
markets.
2.
Measure, model, and forecast the volatility of bond returns in Canada.
3.
Model and test the determinants of bond credit ratings used by ratings agencies such as
Moody’s.
4.
Model the long-term relationship between prices and Canada-US exchange rates.
5.
Determine the optimal hedge ratio for a spot position in cattle or oil markets.
6.
Test technical trading rules to determine which of them makes the most money.
7.
Test the hypothesis that earnings or dividend announcements have no effect on stock
prices.
8.
Test spot and futures markets to determine which reacts more rapidly to news.
9.
Forecast the correlation between the TSX index and the NASDAQ index.
10.
Model and test the effect of a firm’s capital structure decisions (i.e., debt-equity weight)
Contact the academic expert for this course as early as possible to discuss your choice of
final project topic and possible data sources. Your final project topic must be approved
by the academic expert before you start working on it.
Project tasks
Pick a project topic.
1.
Contact the academic expert for topic approval.
2.
Conduct a literature review that examines at least two, and at most five, articles. For
each article, write a one-paragraph summary and a one-paragraph critical review, then
explain how the article relates to the topic you have chosen for your final project.
3.
Obtain data (contact the Student Support Centre if you encounter problems accessing or
obtaining data).
4.
Analyze the data, according to these guidelines:
5.
If your study involves structural analyses of cross-sectional, time-series, or panel
data, perform the following tasks:
•
a.Define the null hypotheses.
b.Run the regression(s).
c.Discuss how well the model fits by using goodness-of-fit measures.
Check for violations:
d.
o heteroscedasticity
o iid residuals
o autocorrelation
o non-normality
o multicollinearity
linear functional form
o
Test the null hypotheses.
a.
If your study involves building time-series (ARIMA) models, perform the following
tasks:
•
e.Test for non-stationarity in the time series.
f. Use the Box-Jenkins approach to build ARIMA models with an in-sample.
g.Obtain forecasts from the ARIMA models.
Choose the best model based on information criteria.
h.
Write your project report, which should include all of these elements:
title page—List your name, student ID number, project title, and submission date.
•
introduction—Provide a broad overview of your project and what you hope to learn from it.
•
literature review—Summarize and critically review chosen articles.
•
•data descriptions—Describe what, where, and how you have obtained data or transformed
them, and the time periods involved.
methodology—Outline whether you are using structural or time-series models, and specify
models (equations) used.
•
results—Discuss the regression results obtained in EViews, and whether or not they are
favourable to your original hypotheses.
•
conclusion—Briefly describe (one to two paragraphs) what you have learned from your
analyses.
•
references—Provide full bibliographical information in APA format, including the articles in
your literature review.
•
appendices—Include discussions, tables, or graphs that do not contribute directly to the
“meat” of your project write-up, but might nevertheless be of interest to your audience
(i.e., your marker).
•
Use Microsoft Word or other compatible word-processing software to prepare your finished
assignment. You will be using EViews extensively for your project, so your project writeup
must include descriptions of analyses performed using this software package, and your
conclusions must refer to these results. Submit any EViews file(s) used for your analyses
with your MSWord file.
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