Risk Management EC5533
Mid Term Assignment
An Excel spreadsheet containing 2002 daily data on three stock indices (Nikkei 250, FTSE-100 and S&P500) can be downloaded from Blackboard Learn. For each of those:
1) Calculate and plot the rate of returns;
2) After having estimated the conditional variance using a GARCH(1,1) model:
a) calculate the long run variance;
b) plot the conditional variance;
c) comment on the persistency of the conditional variance;
d) using the information available at the end of the day n-1, forecast the expected volatility on day n+k (k = 10, 20, 40) for each of the three stock indices.
3) Test whether the conditional volatility has any statistically significant impact on its own stock market returns.
4) Test whether the S&P500 squared returns have any statistical significant effect on the other two markets’ conditional variances.