Estimate a Vector Autoregression (VAR) or Vector Error Correction Model (VECM): Empirical Finance Assignment, UCC
| University | University College Cork (UCC) |
| Subject | Finance |
Assignment Details:
Estimate a vector autoregression (VAR) or vector error correction model (VECM) as appropriate to assess the interactions between stock returns, bond returns, the dividend yield, and the yield spread (as in Campbell and Viceira, 2003).
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1. Construct and graph the relevant variables.
2. Test for stationarity and explain why you choose to use a VAR or a VECM.
3. Does the dividend yield or the yield spread have any predictive power for future stock or bond returns?
4. Present and discuss the Impulse Response Functions (IRFs) following a shock to each of the variables. Data is attached
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