Assignment 2
Due date: 18 October2024
Submission
Please submit your works on the 125785 Stream website in the “Submission online - Assign- ment 2 (Distance and Auckland Internal)”
• Please submit only one PDF file which includes:
• Answers for Part A, B and C.
• Computer printouts that are helpful for your answers.
• Contents of R script for the commands used for your answers.
• Use the filename name__surname__studentID__assignment2.pdf
• The online submission is designed to facilitate the students. However, if you cannot submit online, you can also choose to submit via email.
Part A: Regression Analysis – 10 points
Use 10-year return data of a NZ public company and NZ__50 index. (or a stock in other exchanges with its market index). Perform the following analysis.
Example: Use R code to obtain data
1 library(tidyverse)
-- Attaching core tidyverse packages ------------------------ tidyverse 2.0.0 --
v dplyr 1.1.4 v readr 2.1.5
v forcats 1.0.0 v stringr 1.5.1
v ggplot2 3.5.1 v tibble 3.2.1
v lubridate 1.9.3 v tidyr 1.3.1
v purrr 1.0.2
-- Conflicts ------------------------------------------ tidyverse_conflicts() --
x dplyr::filter() masks stats::filter()
x dplyr::lag() masks stats::lag()
i Use the conflicted package (<http://conflicted.r-lib.org/>) to force all conflicts to be
1 library(tidyquant)
Registered S3 method overwritten by 'quantmod':
method from
as.zoo.data.frame. zoo
-- Attaching core tidyquant packages ------------------------ tidyquant 1.0.9 --
v PerformanceAnalytics 2.0.4 v TTR 0.24.4
v quantmod 0.4.26 v xts 0.14.0-- Conflicts --------------
x zoo::as.Date() masks base::as.Date()
x zoo::as.Date.numeric() masks base::as.Date.numeric()
x dplyr::filter() masks stats::filter()
x xts::first() masks dplyr::first()
x dplyr::lag() masks stats::lag()
x xts::last() masks dplyr::last()
x PerformanceAnalytics::legend() masks graphics::legend()
x quantmod::summary() masks base::summary()
i Use the conflicted package (<http://conflicted.r-lib.org/>) to force all conflicts to be
1 NZ50 <- tq_get('^NZ50',from='2012-12-31',get='stock.prices') %>%
2 tq_transmute(select = adjusted, mutate_fun = periodReturn,
3 period = "monthly", col_rename = "ret")
Warning in to_period(xx, period = on.opts[[period]], ...): missing values removed from data
A1. Sell in May and go away strategy (5 points)
The Sell in May and Go Away does not invest the market during May to October and invests in the market during November to April. Assume when going away, it earns 0%. See the discussion of the strategy in the US at https://www.investopedia.com/terms/s/sell-in-may- and-go-away.asp
• Discuss the descriptive statistics (average return and standard deviation) of the buy- and-hold return and the sell-in-May return.
• Use two-sample t-test and paired t-test to test whether the buy-and-hold return and volatility is significantly higher than the sell-in-May return market. Discuss the ap- propriateness of each test.
A2. Loan approval model. (5 points)
Use data “loanapp” from library(wooldridge)
approue = α + β1white + β2 loanprc + β3married + E
• Compare the out-of-sample performance of the loan approval models based on OLS
and logit regressions. Use the first 70% of the sample to estimate the model and
use the remaining 30% to do the out-of-sample performance using information in the
confusion matrix. I.e., discuss the accuracy, precision, recall, F1 score , and
Area Under the Receiver Operating Characteristics Curve (ROC-AUC).
Part B: Assumptions in the Regression – 10 points
B1. CLRMs and Specification assumptions (5 points)
Use the (raw) dataset “wage1” in the library(wooldridge) to analyse multiple determinants of income.
lwage = α + β1 educ + β2 e犹per + β3tenure + β4 female + E Note: Refer to help for variable description. lwage is log(wage)
• Estimate the model and interpret the results in statistic and economic terms of the return to education.
• Discuss if the model satisfies the CLRM1, CLRM2, CLRM3, CLRM4, CLRM5, multi- collinearity, function form, and parameter stability assumptions. Support the discus- sion with the test results and solutions if necessary.
B2. Panel data analysis (5 points)
Use data “hprice3” from library(wooldridge)
lprice = α + β1 lland + β2 llarea + β3 baths + ∈
• Estimate the model using the fixed-effect regression with neighborhoold and year fixed effects with the clustered standard error by neighborhood. Discuss the economic impact of the number of bathrooms on the price.
• Estimate the model using the random effect. Is the result different from the OLS model? Test whether the random effect model or the fixed effect model is more appropriate.
• Discuss the benefits and weaknesses of the fixed effect model in the panel data analysis.
Part C: CausaI lnference and CriticaI Reading of a Research
ArticIe — 10 points
C1. Causal Inference (5 points)
You are researching whether the CEO risk taking propensity (explanatory variable) affect the firm performance (outcome variable). The control variables are 1) size 2) book-to-market ratio 3) leverage 4) profitability
• Draw the Directed Acyclic Graphs (DAGs). Is it possible to identify the effect of CEO risk taking on firm performance? Provide the evidences to support the answer.
• What control variables need to be included and excluded in the regression model? Provide the evidences to support the answer.
• Examine the causal impact of the CEO risk-taking using the instrumental variable and the 2SLS regression. Suggest one possible IV of the CEO risk-taking. Evaluate whether such IV is appropriate. Provide the evidences to support the answer.
C2. Critical Reading of a Research Article (5 points)
Select one research article relating to the ESG. ESG (Environmental, Social, Governance) is associated with many firm characteristics and outcomes (i.e. risk and performance).The articles should be published on or after 2015 (including forthcoming articles) in the top or the ABDC-A* journals (see the list below) in Economics, Finance or Accounting .
• Carefully read the article and write a short reports.
• Each report is around 5 pages double-spaced (1,000 words) discussing
• Why this is an interesting research?
• Summarize the article. (purpose, data, methods, key findings)
• Critically discuss the methodological/econometrics challenges and solutions.
Top Journals
Economics Quarterly Journal of Economics (QJE), Journal of Political Economy (JPE), American Economic Review (AER), Econometrica (ECT), Review of Economics Studies (RES)
Finance Journal of Finance (JF), Journal of Financial Economics (JFE), Review of Fi- nancial Studies (RFS), Journal of Financial and Quantitative analysis (JFQA), Review of Finance (ROF), Management Science (MS), Journal of Business (JB) (Discontinued)
Accounting The Accounting Review (TAR), Journal of Accounting Research (JAR), Jour- nal of Accounting and Economics (JAE), Contemporary Accounting Research (CAR), Re- view of Accounting Studies (RAS)
Management Journal of Management, Academy of Management Journal, Journal of Op- erations Management, Academy of Management Review, Strategic Management Journal, Management Science, Journal of International Business Studies, Organization Science, Jour- nal of Management Studies
ABDC A* Journals: Economics
• American Economic Journal: Applied Economics
• American Economic Journal: Economic Policy
• American Economic Journal: Macroeconomics
• American Economic Journal: Microeconomics
• American Economic Review: Insights
• American Journal of Agricultural Economics
• Econometric Theory
• Econometrica
• Economic Theory
• Energy Economics
• European Economic Review
• Experimental Economics
• Games and Economic Behavior.
• Health Economics
• International Economic Review
• Journal of Applied Econometrics
• Journal of Business & Economic Statistics
• Journal of Development Economics
• Journal of Econometrics
• Journal of Economic Behavior and Organization
• Journal of Economic Dynamics and Control
• Journal of Economic Growth
• Journal of Economic Literature
• Journal of Economic Perspectives
• Journal of Economic Theory
• Journal of Environmental Economics and Management
• Journal of Financial Econometrics
• Journal of Health Economics
• Journal of Human Resources
• Journal of International Economics
• Journal of Labor Economics
• Journal of Monetary Economics
• Journal of Money, Credit and Banking
• Journal of Political Economy
• Journal of Public Economics
• Journal of Risk and Uncertainty
• Journal of the European Economic Association
• Journal of Urban Economics
• Quantitative Economics
• RAND Journal of Economics
• Review of Economic Dynamics
• The American Economic Review
• The Economic Journal
• The Journal of Economic History
• The Journal of Law and Economics
• The Quarterly Journal of Economics
• The Review of Economic Studies
• The Review of Economics and Statistics
• Theoretical Economics
ABDC A* Journals: Finance
• Critical Finance Review
• Insurance: Mathematics & Economics
• Journal of Banking & Finance
• Journal of Corporate Finance
• Journal of Financial and Quantitative Analysis
• Journal of Financial Economics
• Journal of Financial Intermediation
• Journal of Financial Markets
• Review of Asset Pricing Studies
• Review of Corporate Finance Studies
• Review of Finance
• The Journal of Finance
• The Review of Financial Studies
ABDC A* Journals: Accounting
• Accounting Auditing and Accountability Journal
• Accounting, Organizations and Society
• Auditing: A Journal of Practice and Theory
• British Accounting Review
• Contemporary Accounting Research
• Journal of Accounting and Economics
• Journal of Accounting Research
• Journal of Business Finance & Accounting
• Journal of Management Accounting Research
• Management Accounting Research
• Review of Accounting Studies
• The Accounting Review
• The European Accounting Review