Solutions to Exercises Analysis of Financ?:al Time Series ISBN 0470414359 Third Edition, John Wiley, August 2010 Ruey S. Tsay ‘The solutions are intended for use by instructors who adopt the book as a textbook for their courses. No part of the solutions can be re-produced or re-distributed without @ written permission from the author and the publisher of the book. For a given data set, there may exist several models that fit the data well. The models given in the solutions are based on the author's experience and preference. Thus, in using the solutions, please keep in mind that other choices of model are possible. Furthermore, different software packages may give different estimation results even for the same model. Ideally, the differences should be small. In some cases, the difference could be substantial. However, I do not compare carefully the estimation results between different software packages. If possible, I used R to obtain the solutions. In some cases, SPlus and some R scripts are used. ‘Most of the R scripts can be found in my teaching webpage for an MA course Analysis of Financial Time Series at Chicago Booth. RST. Chicego, IL July 2010Solutions to Exercises of Chapter 1 Problem 1: Summary statistics of daily returns from January 1999 to December 2008. Stock | mean | St. Dev. | Skew | Bx. Kurt. | Min | Max. | tratio(p-value) (a) Percentage simple returns: 2515 data points | AXP | 0015 | 2446 | -0.035 | 6048 | 17.505] 17.927] 0.299(0.77) | CAT | 0.060 | 2170 | 0.012 | 4.453 | 14.518 | 14.723 | 1.375(0.17) | sBux | 0.048 | 2.683 | -0.082| 8.746 _| —28.286 | 14.635 | _0.898(0.37) (b) Percentage log returns: 2515 data points [ARP ]-00I5] 2453 [-0.336] 6.486 | —19.952 16.489 —0.316(0.75) | CAT | 0.036 | 2171 | 0.202} 4.695 | ~15.686 | 13.735 | _0.830(0.41) [SBUX| 0.012 | 2696 | -0.597| 12.90 _| ~33.249 | 19.659 | _0.221(0.83) ‘The sample means of the log returns are not significantly different from zero at the 5% level. Problem 2: Summary statistics of monthly returns from 1975 to 2008. Stock | mean | St. Dev.| Skew | Ex. Kurt | Min | Max | tratio(p-value) (@) Percentage simple returns: 408 data points [GM T0557] 9.273 | 0.383] 2048 | —38.931 | 27.602 z 213(0.23) vw | 1.012] 4.507 | -0.743] 2.666 | -22.536 | 14.160 )- 4.534(0.00) EW |1331] 5.596 | -0.300| 4.334 | -27.295 | 29.926 “ 806(0.00) sP__|o.730] 4.360 |-0571| 2269 | -21.763 | 13.177| _3.382(0.00) (b) Percentage log returns: 408 data points GM | O10] 9950 ] 1.024] 4021 | —40.317 [24492] 0.232(0.82) | vw | 0.905] 4.561 | -1.051) 3.938 | -25.536 | 13.243 | 4.006(0.00) EW | 1.167} 5.626 | -0.836) 5.242 | -31.779| 26.179 | 4.190(0.00) sp_ [0632] 4402 | ~0.855| 3.335 | ~24.543 | 12.378 | _ 2.900(0.00) The sample mean of the monthly GM stock return is not significantly diferent from zero, but ‘those of the monthly log returns of indices are all significantly different from zero at the 5% level. Problem 3: Focus on monthly S&P composite log returns. © Average annual retumm = sample mean * 12 = (sum of log returns)/(number of years) = 7.583%. © V = exp(0.07583 «(2008 —1975+1)) ~ $13.17. (or V = exp(S-{%% r), where 7; is the monthly Jog return).