Quantitative Techniques - Limitations of Statistical Analysis - Accounting and Finance Assignment Help

Assignment Task:

Learning outcomes (LO) mapping 
1. Examine the various quantitative techniques used to describe, estimate and evaluate data
2. Evaluate the strengths and limitations of statistical analysis techniques in finance
3. Apply quantitative techniques to describe financial data and test claims of performance
4. Analyse the factors that influence the risk and return of asset classes and financial securities
5. Assess statistical models used in estimating the value of financial assets and constructing efficient portfolios

Questions 1 to 5

You have been provided a sample of historical price level of the following shares and index at the end of each month from June 2007 to June 2017 (‘Section A Monthly Price&Index’ tab) in order to run a number of statistical analysis techniques.

• Qantas Airways Limited (QAN)
• Telstra Corporation Limited (TLS)
• Westpac Banking Corporation

(a) Using the historical price level of the QAN, TLS and WBC shares and AORD index available in the tab ‘Section A Monthly Price&Index’, calculate the monthly rate of returns (%) of these shares and index to two (2) decimal places in the tab ‘Section A_Q1’. From your Excel results, paste a copy of the monthly returns for the shares and index for the months of July 2007 and June 2017 only in the answer section of your Word document

(b) Use Excel’s Data Analysis to work out the descriptive statistics for these monthly returns to two (2) decimal places.  From your Excel results, paste a copy of the following descriptive statistics in the answer section of your Word document

(c) Evaluate QAN, TLS, WBC and AORD return series, with reference to sample mean, sample standard deviation, skewness and kurtosis statistics

Question 2

(a) Set up a hypothesis test at 5% significance level to determine whether QAN’s mean return is significantly different from zero. Show all your workings in the Word document.

(i) What are the null and alternative hypothesis for this test? 

(ii) Explain the risks associated with Type I and Type II errors in this context.

(iii) What type of test and distribution would you recommend for this test? Provide reasons for your recommendation.

(iv) Based on your recommendation above, determine the appropriate critical value and test statistic for the hypothesis testing at 5% significance level.

(v) What is your conclusion for this hypothesis test? 

(b) Set up the null hypothesis and alternative hypothesis to determine whether TLS’s monthly return is significantly different from WBC’s monthly return.

(i) What are the null and alternative hypothesis for this test? 

(ii) By Using Excel’s paired t-Test (see tab Section A_Q2), find the critical value and test statistic for the hypothesis testing at 5% significance level. 

(iii) What is your conclusion for this hypothesis test.

Question 3

(a) Provide the estimated regression equation for WBC, with coefficients to four (4) decimal places.

(b) Predict the WBC returns when the monthly return on the AORD is 7.5%, as a % to two (2) decimal places.

(c) At 0.05 level of significance, is there evidence of a linear relationship between WBC and AORD? Show all your workings in relation to your conclusion. 

(d) What is the R-square statistic and interpret its meaning for this regression?

(e) Generate the residual plot (scatter plot of residuals of the above regression against AORD) for the above regression. Paste your residual plot from excel file to word document. Comment on heteroskedasticity of this regression with reference to the residual plot. 

(f) Discuss the ways of eliminating heteroskedasticity issues. Your discussion requires three (3) points. 

(g) Calculate the Durbin-Watson statistic for the above regression, and provide this in the Word document of your assignment, to four (4) decimal places. Comment on the serial correlation of this regression with reference to Durbin-Watson statistic.

(h) Discuss the ways of eliminating serial correlation issues. Your discussion requires three 

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