ECO9073 Econometrics, T&A: Project (Fall 2015)

The project is the work of a group of 3 students. Members of the group are fully responsible to create incentives
to avoid free-riding within the group. The final grade is based on the group project and presentation and will
be the same for all group members. The project represents 20% of the overall grade in the course.

Important Dates
Presentations: Monday, December 14th, 2015
8 groups, 15 minutes each group
Project submission: Wednesday, December 9th, 2015
(Submit the project through Blackboard; the weight on the project grade is 19% of your overall grade)
Proposal submission: Monday, November 16th, 2015
(Submit the proposal in Blackboard by 6pm; the proposal is 1% of your overall grade)

Aims of the Project

1. Demonstrate the ability to think about a relevant financial or economic problem and specify a model
suitable for empirical investigation
2. Be able to apply the econometric techniques discussed in class in a competent manner
3. Be able to perform an empirical analysis in R
4. Be able to write a report and present the results of the project to an audience

2.1

Choose a project topic

The project idea could be inspired by a topic that you learned in another course, or that you read in a newspaper/ magazine/web/blog, as well as inspired by a real issue that you encountered at work. Try to think of
a simple but relevant and interesting problem. Keep in mind that you might have a very brilliant idea, but a
necessary condition to finish an empirical project is data availability. So, check at an early stage that you have
the data suitable to carry out the project (otherwise, switch to another topic).
It is important that you scan through the literature to find articles that conduct an analysis related to your
idea. This is useful because it gives you access to data sources, model, issues, and a set of results that you
should expect for your project. To help you in the process of choosing a topic, below are some articles that use
the tools (at least for part of the paper) we discussed in the course and can be the base for a project:
W.N. Goetzmann, L. Peng, J.Yen (2009), The Subprime Crisis and House Price Appreciation, NBER
working paper 15334
C. Himmelberg, C. Mayer, T. Sinai (2005), Assessing High House Prices: Bubbles, Fundamentals, and
misperceptions, Staff Report n. 218, NY Fed
C.S. Asness (2000), Stocks vs Bonds: Explaining the Equity Risk Premium, Financial Analysts Journal,
56(2), pg. 96-113
C.J. Neely, D.E. Rapach, J. Tu, G. Zhou (2014), Forecasting the equity risk premium: the role of technical
indicators, Management Science, 60(7), pg. 1772-1791
R. Cantor and F. Packer (1996), Determinants and Impact of Sovereign Credit Ratings, FRBNY Economic
Policy Review, October

 M. Scheicher (2008),How Has CDO Market Pricing Changed During the Turmoil? Evidence from CDS
Index Tranches, ECB working paper, n. 910
B. Barber, R. Lehavy, M. McNichols, B. Trueman (2003), Reassessing the Returns to Analysts Stock
Recommendations, Financial Analysts Journal, 59(2), 88-96
C. Baumeister and L. Kilian (2013),Forecasting the Real Price of Oil in a Changing World: A Forecast
Combination Approach, CFS working paper
C.B. Erb and C.R. Harvey (2006), The Strategic and Tactical Value of Commodity Futures, Financial
Analysts Journal, 62(2), pg. 69-97
A. Petajisto (2013), Active Share and Mutual Fund Performance, Financial Analysts Journal, 69(4), 73-93
J. Hasanhodzic and A. Lo (2007), Can Hedge Fund Returns Be Replicated? The Linear Case, Journal of
Investment Management, 5(2), pg. 5-45
X. Lou and R. Sadka (2011), Liquidity Level or Liquidity Risk? Evidence from the Financial Crisis,
Financial Analysts Journal, 67(3), pg. 51-62
L.K.C. Chan, N. Jegadeesh, J. Lakonishok (1999), The Profitability of Momentum Strategies, Financial
Analysts Journal, 55(6), pg. 80-90
M.M. Copeland and T.E. Copeland (1999), Market Timing: Style and Size Rotation Using the VIX,
Financial Analysts Journal, 55(2), pg. 73-81
M. Haug and M. Hirschey, The January Effect, Financial Analysts Journal, 62(5), pg. 78-88
S.C. Andrade, V. Chhaochharia, M.E. Fuerst (2013), Sell in May and go away ... Just Wont go Away,
Financial Analyst Journal, 69(4), pg. 94-105
M. Pojarliev and R.M. Levich (2008), Do professional currency managers beat the benchmark?, Financial
Analysts Journal, 64, pg. 18-32
L. Menkhoff, L. Sarno, M. Schmeling, A. Schrimpf (2012), Currency momentum strategies, Journal of
Financial Economics, 106(3), pg. 660-684
C.J. Neely and P.A. Weller (2011),Technical analysis in the foreign exchange market, St Louis Fed, working
paper
V. Bhansali (2008), Tail Risk Management, Journal of Portfolio Management, 34, pg. 68-75
The website scholar.google.com is a good starting point for findings (academic and professional) articles
related to the topic you are interested. You can download the paper cited above from the internet or from
the Journal through the Baruch Library. References are useful not only to assess what has already been done
in the literature, but also to find data sources and the type of econometric analysis that is used. In addition,
in writing the report it will be useful to explain how your analysis differs/confirms these earlier results in the
literature.

2.2

Report and presentation

The Report should be max 10 pages long (font 12, spacing 1.5; estimation output, figures, and R code in an
appendix) and structured as follows:
1. Introduction: you explain the topic of your project, why it is relevant, sketch the main findings known
from the literature (has the literature reached a consensus on the topic or there are different views about
it?), and, finally, briefly discuss your main results (also in comparison with the results in the literature).
2. Survey of the literature: here you discuss the articles/papers that you found on the topic. It is probably
good to start with the earlier papers and explain in reasonable detail the technique, data, and results.
The discussion of later papers should be related to the earlier ones: what are the later papers adding
or doing different compared to the earlier ones? different data and/or econometric technique? are their
results different?

3. Model: in this section you are going to explain the empirical model that you are adopting. It can be a
model suggested by economic theory or it could inspired by the problem at hand. Explain why you put
a certain variable on the left-hand and some other variables on the right-hand side (since you already
explained the problem in the introduction, at this point it should be clear to the reader why you are
choosing a certain specification).
4. Data: report the source of your dataset, which variables you are considering, for how many individuals or
for which period of time etc.
5. Empirical Application: in this section you report the results of the model estimation and you should
discuss all the econometric issues that you addressed in arriving to the final specification. In the final
specification you might have dropped some irrelevant variables, played with the functional form, allowed
for heteroskedasticity, serial correlation etc.
6. Conclusion: here you summarize the results of your project and how they are different or confirming
earlier results.

Data

There are two main sources of datasets: the databases available through the Library or the Internet. Some
databases with economic and financial time series are available at the library: Datastream (one computer only
with access, ask at the Library desk), Compustat (revenue, EPS, etc), CRSP (stock prices), IBES (analysts
expectations), NYSE TAQ (Trade and Quote; tick by tick data), STAT-USA. Remember also that you might
get access to some data through the Bloomberg and Reuters terminals at the Subotnik center. On the internet
you can find lots of data: portfolio returns at the website of Ken French at Dartmouth, Yahoo Finance, etc.),
and for macroeconomic data visit FRED which is a rich database of economic and financial time series from
the Saint Louis Fed.

The R programming language is an integral part of the course and included in the learning goals. Students
should conduct their analysis in R and the use of alternative packages should be discussed with the instructor.

Assessment

The assessment is based on the quality of the project with respect to the learning criteria stated above. Excellence in all aspects (originality of the issue, econometric competence, and communicability) will be rewarded
maximum grades. Lack in some of these aspects will decrease the mark.

Academic Honesty

In addition to the standard rules of academic honesty, you should be aware that Ill scan every project with the
plagiarism detector software (and in case of significant matching I reserve the right to give a 0 out of 100 to all
members of the group).

Finally, let me know if I forgot some relevant information from this document and ... GOOD
LUCK!