HOMEWORK #2
SPRING 2021
Due Date: Friday March 26, 2021
Use the R Demonstration commands on appropriate pages of the textbook for this homework:
Use the Quantmod Package to download Adjusted Close Prices (from Yahoo) for the S&P 500 Index.
Download monthly LEVEL (Adjusted Close Price) data for the S&P 500 Index from January 2010 through December 2019.
Compute the Simple Returns for the S&P 500 Index. [See page 3, equation 1.2]. If easier for you, you can calculate Simple Returns in EXCEL and then upload the .csv file into R.
Compute the Simple Returns for the same stock you analyzed in Homework #1.
Chart BOTH price series. Describe.
Chart BOTH Simple Return series. Describe.
Using Simple return series, compute the following measures of dependence [see page 44]:
Pearson Correlation,
Spearman’s Rank Correlation (Rho), and
Kendall’s Tau.
Describe each measure.
Explain each number for each measure.
Compare and Contrast the three measures.
Calculate the autocorrelations up to lag 12 for BOTH Simple return series. Test autocorrelations at the following lags for statistical significance at the 5% level of significance:
Lag 1.
Lag 6.
Lag 9.
Lag 12.
State the NULL hypothesis and the ALTERNATIVE hypothesis for this test? ONLY ONE NULL hypothesis and ONLY ONE ALTERNATIVE hypothesis needed. [See page 47].
Use the Box-Pierce and the Ljung-Box statistics to test for Joint Statistical Significance of each of the Simple return series.
What are your conclusions?
What is your NULL hypothesis for each of these two statistical tests? [see page 49]
What is your ALTERNATIVE hypothesis for each of these two statistical tests? [see page 49]
Is any of the two Simple return series a White Noise series? Why or why not? Explain.
HOW TO SUBMIT YOUR WORK:
Copy ALL your R commands and results into a WORD file. Save this file.
Using a maximum of one (1) page, answer the questions in #s 1 – 10 above. Save this page as a separate WORD file.
Submit BOTH WORD files on Blackboard (Course Documents – HOMEWORK #2).