Advanced Applied Quantitative Methods in Finance

(AAQMF)

You are required to write an essay which answers the following questions:
1. Write an essay on ARCH and GARCH Models and their use in Finance
studies. Please support your answer with formulae and graphs. Use any
two of the following countries stock market indexes: Portugal, Italy,
Greece and Spain (PIGS countries) to obtain results (50%).
You are not allowed to use Yahoo finance to obtain data.
Tips:
I. Provide evidence of all the diagnostic tests needed
II. Support your answer with graphs
III. Provide statistical evidence regarding which model to detect the
most appropriate for the data.
IV. Summarise your answers in organised tables using outrege2 or
estesto commands.
2. Use the data set from assignment data 2014.xlsx file and estimate the
following models of determinants of banks profitability by utilising your
knowledge on Pooled OLS (POLS) and panel data analysis. Summarise
your estimation and provide analytical and critical discussion on the
results. Elaborate the cons and pros of each model. Please support your
answer with formulae and graphs (50%).

Please refer to blackboard to download dataset {assignment2014.xlsx} file.
Tips:
I. Provide evidence of all the diagnostic tests needed
II. Provide statistical evidence about which model is appropriate to
analyse the data by testing for POLS, Fixed Effect (FE), Random
Effect (RE), etc.
III. Summarise your answers in organised tables using outrege2 or
estesto commands.
IV. You may consult the following literature to provide more insights for
your analysis.
Literature
Angbazo, L. (1997). Commercial bank net interest margins, default risk, interest-rate risk, and off
balance sheet banking. Journal of Banking and Finance, 21, 55 to 87.
Berger, A.N. (1995). The relationship between capital and earnings in banking. Journal of Money
Credit and Banking, 27, 432 to 456.
Goddard, J., Molyneux, P., & Wilson, J.O.C. (2004). The profitability of European banks: a cross
sectional and dynamic panel analysis. The Manchester School, 72 (3), 363 to 381.
Molyneux, P., & Thornton, J. (1992). Determinants of European bank profitability: a note. Journal of
Banking and Finance, 16, 1173 to 1178.

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