Research Methodology And The Garch Type Model Finance Essay - Free Essay Example

Sample details Pages: 5 Words: 1535 Downloads: 5 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? This chapter introduces the research design which has been used for the completion of this research work. Research methodology is the most important aspect of a research as it regulates the flow of emulation. A research design should be selected carefully because it helps in many important steps of a research mainly that of collecting data and its analysis. Don’t waste time! Our writers will create an original "Research Methodology And The Garch Type Model Finance Essay" essay for you Create order Research methodologies are advantageous and at the same time have some limitations, which must be carefully focused and understood by the researchers. In this chapter, the methods used for data collection and the data type will be looked upon, as well as the calculations that might have been applied to this type of data. This chapter will also examine the GARCH type models, and the reasons for choosing this model over other available ones. 3.4 GARCH Model: For the purpose of this research, GARCH model is being used for asymmetric distinction between positive and negative shocks. GARCH is a volatility based model introduced by Bollerslev in the year of 1989. This model is being widely used for reversion and conational volatility. GARCH model helps in appointing a symmetric response of volatility to positive and negative shocks. A number of extensions have been made in the GARCH model from the time it had been developed. GARCH-type models are the most appropriate for series which do not have constant error terms and for classic regression model which are not likely to be satisfied when working with financial type of data. GARCH models are able to account for auto correlated volatility clustering in the financial data. The limitation of GARCH model is that it does not allow any feedback for conditional variance and conditional mean (Brooks 2008). The approach to the present study is quantitative in nature; that involves collection of numerical data from reliable sources and then applying GARCH Model for assessing stock sensitivity to changes in the foreign exchange rates and interest rates. The GARCH model was preferred over the ARCH models because according to Brooks (2002), the former is more of a complete model and thereby avoids over fitting, as the current conditional variance can be influenced by an infinite number of past squared errors. In addition, the GARCH-type models are less likely to breach non-negativity constrains. Though GARCH-type models are more appropriate for the type of data and estimations in this research, when compared to traditional linear regression or ARCH models, they do have a few restrictions as well. A concept of symmetric response to shocks, contradicts a theory of leverage effects which suggests that a negative shock is more likely to have a greater impact on volatility as opposed to the positive shock of the similar size. 3.6.1 Descriptive Statistics The descriptive statistics is very important as it gives a number of statistical information about the data. Descriptive statistics are simply used to describe the sample that one is concerned with. They are used in the first instance to get a feel of the data; in the second, for the use in statistical tests; and in the third, to indicate the error associated with results and graphical output. 3.6.1.1 Testing the Significance of the Mean The mean is the average value of the series which is obtained by adding up the series and dividing by the number of observations. The standard deviation (Std. Dev.) is a measure of the dispersion of the series. The Standard deviation is calculated as †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. (1) Where n is the number of observations, is the i-th observations and y is the mean of the series. Regarding the mean test, it is defined as the mean of the series, y which is equal to zero with the null hypothesis. 3.6.1.2 Skewness Skewness is a measure of symmetry, or more precisely, the lack of symmetry. A distribution, or data set, is symmetric if it looks the same to the left and right from the center point. The skewness value can be positive or negative, or even undefined. It is the extent to which the distribution is asymmetric. The equation of a series is calculated by using E-views as: S= 3 †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. (2) Where is an estimator for the standard deviation that is based on the biased estimator for the variance, and can be expressed as = for the normal distribution or any other symmetric distribution, the skewness is either negative or positive. Positive skewness means that the distribution has skewed to the right. A positive skewed distribution differs from the log- normal distribution; that the bank price changes will increase by a larger amount than the log-normal distribution. Negative skewness means that the distribution is skewed to the left. 3.6.1.3 Kurtosis Kurtosis is a measure of whether the data are peaked or flat relative to a normal distribution, that is; the data sets with high kurtosis tend to have a distinct peak near the mean, decline rather rapidly, and have heavy tails. Data sets with low kurtosis tend to have a flat top near the mean rather than a sharp peak. A uniform distribution would be the extreme case. Measuring kurtosis of the series enables to capture another possible factor away from normality. Kurtosis can be calculated as: K=4 †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. (3) Where , is the standard deviation, i based on the biased estimator for the variance. A normal distribution has a kurtosis of 3. Compared with the normal, if the kurtosis is larger than 3, the distribution is peaked, with larger probability of values close to or far away from the mean. If the number is smaller than 3, the distribution is flatter than the normal distribution, with larger probability of values intermediately distant from the mean. 3.6.1.4 Jarque-Bera Statistic The Jarque-bera  is a  goodness of fit  measure of departure from  normality, based on the sample  kurtosis  and  skewness. Jarque-Bera is a statistic test for measuring the returns that are normally distributed within the null hypothesis. The test measures the difference of the skewness and kurtosis of the series and compares it with those from the normal distribution. Jarque-Bera is defined as {} †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. (4) Where k is the number of estimated coefficients used to create the series and N is the number of observations. Under the null hypothesis of a normal distribution, the Jarque-Bera statistic has an asymptotic chi-squared or X2 distribution and two degree of freedom. 3.7 Data Collection The data collected for this study is taken from all the leading banks in the US and is adjusted to remove discrepancies related to the no-existence of data and holidays. The reason for taking daily data instead of monthly data, is that it would allow much better reflection of the movements in the FX rate and the interest rate and thus the results are expected to be more accurate and complete. The data is obtained for 60 banks operating in US and sampling is done to ensure that all three categories of banks including Money Centered Banks, Large Banks and Regional Banks have fair representation in the sample data. The data collected is for a period of 10 years starting from January 1st 2000 to 31st December 2010. The stock prices are adjusted for dividends so as to avoid a systematic bias in relation to ex-dividend days. The  data collected comprises of US index- trade weighted exchange rate, US 3-month Treasury bill  rates, US total market  price index  and share  pr ices  for US banks.  For the US market, the FX rate is dollar trade weighted exchange rate, provided by the Bank of England. The interest rate is the rate used in daily returns of US three-month treasury bills. US total stock market index calculated by Datastream are employed as US market return indexes. For the estimation purposes several modifications are applied on the data in order to stabilize the variance and to induce stationary. The data was transformed to natural logarithms. The value of 3-month logarithms were calculated as In(1+it/100). It was further required to compute first differences due to the series in natural logarithms being non-stationary. Consequently, the changes of interest rate is computed as ?= In(/100+1) In(/100+1). For any other time series, the transformation = In(Yt)- In(Yt-1) is used. The stationary of the series is important when applying statistical regression models as non-stationary series may lead to biased estimates. 3.8 Model Specification To measure the interest rate sensitivity and the foreign exchange rate sensitivity, we use the following equation ?Pi,t = a0,i + ?0,i?Xt + ?0,i?It + ?0,i?M + ?i,t.. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. (5) Here, ? denotes the difference operator (log changes).Pi,t which is the ith stock price at time t. This variable is assumed to capture all financial and economical factors that are specific to the bank iMt , which is the price of the all-share market index which is considered to reflect economy-wide factors; It denotes a risk-free interest rate or bond index; and Xt denotes an foreign exchange rate or foreign exchange index. In Equation (5), a0,t is the intercept term while ?i,t is a white noise error term that is assumed to follow the iid condition. Equation (5) is an extension of Sharpes single index model which assumes the relationship between any two securities, that is completely explained by their relationship to the market index. So the covari ance among securities returns should be zero once the market influence has been removed. Equation (5) is also consistent with Mertons (1973) inter-temporal asset pricing model (Joseph and Vezos 2006).

The Singer Solution And World Poverty Essay - 1015 Words

Published on September 5, 1999, in The New York Times Magazine, the article â€Å"The Singer Solution to World Poverty†, was written by philosopher Peter Singer. This article states that the solution to world poverty is for Americans to donate income, not vital for necessities, to aid overseas organizations. Throughout his argument, Peter Singer uses such strategies as ethos, pathos, and logos to build his attempt at a legitimate argument. Thousands of children die every single day due to hunger, and using various logical fallacies Singer seems to ring on the reader’s emotions, making them feel guilty. Although Singer’s argument seems to be very unrealistic, it is true that people should be more aware of poverty, and take the necessary action to try to prevent it. American’s have worked for their wealth, so why should we be to blame for world hunger? Through Singers many hypothetical narrations he convinces readers that the fulfillment of indulgences of lu xuries is trivial in comparison to the needs of the world’s poor. In this article ethos is displayed throughout in many ways, beginning when Singer starts out by displaying trustworthiness through his authority as a utilitarian philosopher. He does this by stating his argument with undeniable confidence, which is displayed to the readers from the start. We trust him, and what he says, because of his credentials and this is a tactic exercised by various authorities, such as writers and public figures. The moral appeal to endShow MoreRelatedThe Singer Solution to World Poverty752 Words   |  4 Pagesâ€Å"The Singer Solution to World Poverty† You bought those new Jordans yet? How about the new iPad? What if I told you that you could possibly save a child’s life with that money? In his September 5, 1999 New York Times Magazine article â€Å"The Singer Solution to World Poverty,† Peter Singer goes in on American consumerism and its connection to world poverty. He also explains how donating $200 to overseas aid organizations like UNICEF and Oxfam America is enough to â€Å"help a sickly 2-year-old transformRead MoreThe Singer Solution And World Poverty949 Words   |  4 Pageschapter 20 ‘The Singer Solution to World Poverty’. In this chapter Peter Singer argues that normal spending of money on ourselves is immoral, and should be spent on the welfare of the poor. In this paper I am arguing against Singers theory because it contains errors and rest on a false premise. The premise of Singers argument is simple, people who make more money than is necessary for survival should and are morally obligated to give away all of their excess money to help the poor. Singer uses a coupleRead MoreThe Singer Solution And World Poverty987 Words   |  4 Pagesresponsibilities towards other individuals. In Peter Singer’s article, â€Å"The Singer Solution to World Poverty† he explains situations that may benefit poverty but in doing so explains a person’s morals and willingness of a person to do so. America a capitalist country that Americans work to making a living for themselves and for some their children. Working is a big factor in America that Singer uses â€Å"Dora a retired schoolteacher† (Singer 400) as an example of a situation. Though Dora knows nothing is freeRead MoreThe Singer Solution And World Poverty909 Words   |  4 PagesIn â€Å"The Singer Solution to World Poverty†, Peter Singer states that if Americans do not spend that much money in indulgences, they can actually stop many people from dying. He describes two hypothetical circumstances that support his Idea. In Dora’s case, she protects the boy when she discovered his deathly destiny. Unlike Bob’s case, He did not save the child’s life because he did not want to give up his luxurious car, because he invested his whole life savings on it. Singer adapt these two circumstancesRead MoreThe Singer Solution to World Poverty1062 Words   |  5 PagesIn the New York Times Article â€Å" the Singer Solution to World Poverty† the author Peter Singer argues that there is no reason why Americans don’t donate money to the needy when they can afford countless of luxury that are not essential to the preservation of their lives and health. Singer pursue the audience with two different situations trying to motivate the reader to donate money instantly. The fist situation comes from a Brazilian film, Central Station in which a woman called Dora, a retiredRead MoreThe Singer Solution And World Poverty953 Words   |  4 PagesIn â€Å"The Singer Solution to World Poverty,† Peter Singer argues that Americans are extremely materialistic people. 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I have mixed feelings with Singer’s claim because he expects that people have moneyRead MoreAnalysis of â€Å"The Singer Solution To World Poverty† Essay693 Words   |  3 Pagesï » ¿A Critique For â€Å"The Singer Solution To World Poverty† In the essay â€Å"The Singer Solution to World Poverty,† philosopher Peter Singer addresses the issue of poverty by suggesting Americans give away most of their income to aid those in need. Singer believes that withholding income is the equivalence of letting a child starve to death. Therefore, Singer suggests the ethical thing to do to end world hunger is to give up everyday luxuries. Although donating a vast amount of money could help dying

Fiction Means “An Unreal Or Made Up Story (Kirszner,

Fiction means â€Å"an unreal or made up story (Kirszner, Mandell, 2012 p. 91).† â€Å"Short Story refer to â€Å"a story based on a theme; however shorter than a novel (Kirszner, Mandell, 2012 p.95).† Plot implements the main events in sequence order (Kirszner, Mandell, 2012 p. 110).† Theme: The big idea or topic. The setting is a location or the demographical environment place the story occurred (Kirszner, Mandell, 2012 p. 148).† The point of View: â€Å"the attitude or the way the story presented to the audience. It is to enhance the way the audience interpreting a situation (Kirszner, Mandell, 2012 p. 170).† Antagonist illustrates â€Å"a person, who is opposed to, struggles against (Kirszner, Mandell, 2012 p. 110).† Flashback: â€Å"is†¦show more content†¦The stories conflict stems from the community’s perspective of their views in regards to the way they see the Grierson’s family. They perceive them as stuck up and better opposed to the ordinary people within the town. For example, the Grierson family was wealthy and not deprived. They had the capability to loan the community money, while her father was alive. Then once he had passed away, the community felt just and validated that now Miss Emily would be a force to blend in with the community and become ordinary folks just like others that surrounded her. I believe that if the story were presented from a neutral perspective or point of view, it would be a little different then the way the neighbors gave the story, it came across at times as bias/even one-sided. For example, when the neighbors began to describe the scent they associated it to smelling like a rat. Also, the mayor sent a letter to informing Emily of her family’s neglect to pay their taxes. Before the town had already formed an opinion on the Grierson’s way before Emily father passed. However, Emily families were in breach of their taxes and were lagging behind due to them losing her father. The second element of fiction is the plot: the plot consists of the following features characters, conflict, climax, falling actions, and the resolution. First, let s address theShow MoreRelatedImportant Symbols and Themes of The Glass Menagerie by Tennessee Williams7390 Words   |  30 Pagesa way to hide from reality by staying inside the illusionary world of the apartment. Across the street from the Wingfield apartment is the Paradise Dance Hall (Williams 252). Just the name of the place is a total anomaly in the story. Life with the Wingfields is as far from paradise as it could possibly be. Morning after morning, the only thing Tom and Amanda do is argue. Laura appears to find solace in playing the same records repeatedly again, day after day. Could

The Lottery vs Harrison Bergeron free essay sample

Traditions tend to make you do what everyone else in your society is doing. Both of the tragic stories â€Å"The Lottery†, and â€Å"Harrison Bergeron† teach about how society tends to conform to certain traditions or ways of being, no matter how gruesome. Their societies conform to such bizarre traditions, in fear of what might happen to them if they do not comply year after year. These stories have some similarities, but also have many differences, for example, the setting. The setting of â€Å"The Lottery† is set in the past, around 1948 in a small village of around 200 people, who are a little more barbaric than nowadays. The setting of â€Å"Harrison Bergeron† takes place around 2080, in Middle America. In both stories, the main character gets punished for going against their society’s way of life, and both die while their families watch. Although people today may think that the people and societies in these stories are doing is crazy, but in reality our societies today do not differ in the sense that we are fighting for equality. We will write a custom essay sample on The Lottery vs Harrison Bergeron or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page But fighting for equality may not be what we should be doing. After all, wouldn’t it be bland and no interesting things going on in the world if we were all the same? In â€Å"The Lottery†, each year, everyone in the village is counted for, and the head of the village makes a blank slip of paper for everyone in the village, except one of the papers has a black dot in the middle of it. They put them all in a box, and the next morning, everyone comes to the meeting point in the village, and all of the men of the houses pull a piece of paper out. The family that draws out the paper with a black dot will have one of their family members stoned to death. Even though they may not want to run the society this way, they are afraid to change the ways that their ancestors have lived, and by changing their lifestyle will cause even more problems. In â€Å"Harrison Bergeron†, anyone that had a talent above or below the average was given a handicap to make them equal to everyone else. Those handicaps would either increase their abilities, or decrease them to the average human’s. They may have not liked the way that they were using handicaps against them, but they did not go against it, because it was making the society equal for the better.