John M. Griffin
Empirical Methods in Finance- 395
McCombs School of Business-University of
Assignment #2: Due Monday,
Sept. 11, at 11
Goal: For the student to become familiar with autocorrelation properties.
A. Obtain a large cap index and a very small cap index.
B. Obtain individual stock returns on 10 securities. (Your securities should not overlap with any other student)
Obtain both daily and weekly returns (Use returns not price indices or return indices). Make sure you have at least 5 years of data on your individual securities and make sure that the the returns from at least five of the securities have market caps below $100 million. Avoid any potential selection bias as well.
1. What do the Autocorrelation properties look like on A.
- Plot the ACF and PACF.
- Weekly, Daily
2. Just Weekly. Calculate the autocorrelations on A in 10 year subperiods from 26 to present.
Are autocorrelations declining?
3. What are the autocorrelations on B.
- Weekly, Daily
4. 1/2 of credit. Provide an intelligent discussion of what is driving autocorrelations of both A and B.
-Are autocorrelations large, small, there at all?
-What if anything is driving them?
-Are the autocorrelations consistent or inconsistent with market efficiency.
If possible provide some suggestive evidence to support your conjecture.
Recommended software packages for assignment… Stata, SAS, Eviews, using excel
is not acceptable.
Don’t turn in a mass of computer output. Make
sure and present these results in a neat and well organized presentation. I.e. Part of learning to be
a researcher is not to simply produce computer output but to understand this
output and be able to convey the usefulness of the information to a reader.