Econometric Methods ECO2EME2 Semester 1, 2012 Assignment 1 This project is worth 15% of the total mark and should be handed in to the assignment box located in DWB by 12pm on 19 April (week 7). Clearly write your tutor’s name and indicate the tutorial class that you belong to. Late submission will not be accepted and no extensions will be given. Email submission will not be accepted. This is a project where students should solve the questions independently. So the teaching staff are NOT allowed to help you on any aspect of the project. So we (lecturer and tutors) will not answer any questions directly related to the project, unless they are related to clarification of the content. Students can discuss the content of the project with their colleagues. However, the work on Eviews and report writing should be done individually and independently. Any sign of plagiarism will be penalized according to the University policy. Your report should provide concise and relevant answers to all questions below and the corresponding computer outputs. It does not need to follow a formal report format. The computer outputs should be attached as an appendix to your report. In conducting statistical tests throughout, clearly state all relevant information, such as the null and alternative hypotheses, the distribution you use, the level of significance, the decision rule (critical value or p-value). Note that the “explain”, or “interpret” type questions require concise and to-the-point answers (no more than 0.5 A4 double-spaced page), but they should be relevant and informative. Your report should be typed or hand-written clearly on A4 pages, doublespaced. (Unclear hand-writing may be penalized) Estimation and Testing of Capital Asset Pricing Model The capital asset pricing model (CAPM) is an important model in the field of finance. It explains variations in the rate of return on a security as a function of the rate of return on a portfolio consisting of all publicly traded stocks,…