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Econometrics : 3279

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Project Description

Assuming that the bivariate series of daily log returns of IBM stock and S&P500 index follows a VAR model, download the data from January 2000 to December 2012 from Yahoo. Perform the following using Matlab and show your codes including comments in the appendix:
a) Pick the best VAR using the BIC and AIC and explain your reasoning. [10 marks]
b) Draw the plot of the AIC, HQIC and BIC against VAR order. [5 marks]
c) Estimate the final model and write down your fitted model. Look and interpret some of the interesting characteristics. Find the R2 for your preferred model and interpret. [10 marks]
d) Conduct GC testing in a VAR(1) with no constant and compare this with your preferred VAR(p) model. [10 marks]
e) Draw the impulse responses pictures and interpret your results. [15 marks]

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