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final report, 2020-2021 Instructions Word limit: 2,000 words, not including references section and appendix. Download three data sets: Data set 1 Using Yahoo Finance, download daily stock price data for any four U.S. companies for the period 31/12/97-31/12/08. Data set 2 Using Yahoo Finance, download monthly stock price data for any four U.S. companies for the period 1997:12-2007:12. Data set 3 Using the Bank of England’s statistics database, download monthly data on the end-of- month GBPUSD spot exchange rate (1998:01-2019:12) and the GBPUSD one-month forward exchange rate (1998:01-2019:12). When you have downloaded your data, answer the following questions using MATLAB for all computations. Report your results using tables and graphs where necessary and in each case briefly discuss your results. Include a references section and also an appendix section which should contain the main MATLAB programs used (copy and paste the code for the main programs used to answer each question into your appendix section). Neither of these sections is included in the word count. 2 Questions Q1. (a) Using either Dickey-Fuller tests or variance ratio tests, analyse whether the natural logarithm of the stock price data in data set 1 is consistent with the random walk model. 10% (b) Pick one of the stocks from data set 1 and compute the log-returns for this stock. Using this data, for each day in 2008 compute a one-day ahead log-return forecast from an appropriate ARIMA(p,d,q) model. Starting with $1,000, assume that depending on the direction of each log-return forecast you invest all available funds in the stock (if the forecast is positive), or sell all of your holdings and earn a return of 0 (if the forecast is negative or zero). Analyse the performance of this trading strategy. 30% Q2. Using data set 3 and linear regression, investigate how the statistical evidence on the forward rate unbiasedness (FRU) hypothesis for the GBPUSD changes over the sample period. 10% Q3. Using data set 2 and assuming a one-year investment horizon, no borrowing and no short sales, compute the optimal risky portfolio weights and the optimal final portfolio weights for a portfolio of the four stocks and a single risk-free asset (use any sensible hypothetical value for the risk-free rate). 10% Q4. Using data set 1: (a) For each stock and employing the RiskMetrics approach, compute and graph the one-day ahead return-VaR over the period 02/01/08-31/12/08 and conduct backtesting. 20% (b) Using the RiskMetrics approach, compute and graph the one-day ahead return- VaR for an equally weighted portfolio of the four stocks over the period 02/01/08-31/12/08 and conduct backtesting. 20%