EC5615 - FINANCIAL AND MACRO ECONOMETRICS

An empirical Essay is based on observed and measured phenomena and drives knowledge and understanding from actual experiences instead of theories. The empirical essay is aimed at improving your learning experience and training practical skills such as effective written communication, critical thinking, and applying knowledge of real-world issues. Importantly, it provides you with a stepping stone to the dissertation. You are expected to use the OLS estimation as a regression model to analyze real-world data.

Data – All data for the essay must be independently collected using any reliable data source, e.g. Bloomberg, Datastream/ Eikon, the Office for National Statistics (ONS), etc. You can also use websites, such as investing.com.

Choice of topics: Choosing topics related to financial management is important. Any model or theory that describes a relationship among variables can be considered as long as relevant data are available. Following are some examples of topics:

1. Using monthly return and interest rate data estimate the CAPM betas and alphas for 30 companies traded on the same market, and subsequently analyze those alphas and betas, and rank the companies in terms of their performance.

2. Using the real estate data for London available on https://www.gov.uk/government/statistical-data-sets/price-paid-data-downloads investigate the relationship between the price of a property sold and any other variables of interest, e.g. the floor area, type of housing, energy rating, etc.

3. Using macroeconomic data, investigate the effect on the GDP growth of macroeconomic variables, e.g. education, trade volume, interest rate, investment rate, etc. Use at least 30 countries representing all the geographical regions of Earth. Macroeconomic data is available on the data platforms such as Bloomberg or websites of organizations such as IMF.

4. Using the FAME database of UK companies (available on the library website) explore the relationship between company profitability, e.g. ROA or ROE, and its operating characteristics such as leverage, liquidity, cost structure, turnover, size, etc. typically described by financial ratios. The analysis should be based on at least 30 companies and preferably cover a larger group of companies in one sector, e.g. Manufacturing.

Essay should include the following sections:

Give a brief introduction of what you are doing in this essay (summarise the question), and what you aim to achieve. Aims and objectives, adopted methodology shall be described and potential contributions of the essay are explained in the introduction section.

This part critically reviews the relevant research literature and provides a synthesis of it that leads to your specific research questions. Obviously, you cannot cover all literature on all topics related to your research question; it is left to you to determine what is most relevant and how each piece of the puzzle (referenced publication) fits in relation to your research question.

The data part sets out the facts used in the analysis. It can describe the trends and characteristics in your main data series, and give more detailed information on the
variables used. You must explain where the data come from, how you selected your sample, and what (if any) limitations are there.

The methodology part contains a description and discussion of the underlying econometric model and methods of analysis. It is important that you explain why you chose a particular regression model, given the nature of the topic and the data you use. You need to provide the equations when explaining your model.

This part is the core of the essay. It provides a precise and complete empirical analysis of the data that you chose. The results from the OLS estimation and hypothesis testing should be presented properly and discussed in the context of the
underlying economic model or theory. You should not copy and paste the estimation output from Eviews or any other software directly into the main text.

In the conclusion, you should show the overall significance of your work and analysis. You may want to remind the reader of the most important points that have been made in the essay or highlight what you consider to be the most central issues or findings.
However, no new material should be introduced in the conclusion.

This section should contain a list of sources (papers, books, etc.) cited in the main text using the Harvard referencing style standard for academic literature. There is no limitation to the number of references.

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