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Forecasting Project: Stock and Exchange Rate Analysis

FSMA-6025 Individual Assignment 1 Requirements Requirements: F orecasting project. Select a stock and an exchange rate of your choice. Extract daily stock prices and daily exchange rates for the last five years from Eikon database. Convert the daily stock prices and daily ex change rates into returns as follows: Stock Return (rt) as log returns: 1 ln t t t P r P−  =  where:== tP = Closing stock price at time t ( also for exchange rates) and = 1tP− = Closing stock price at time t -1 (say yesterday =for daily=also for exchange rates) = S tock=or Exchange return (rt) may also be computed as: = 1 1 tt t t PP r P − −  − =  = T he next step is to leave out the most recent= 30 day=returns,=and =to fit the two= financial time series using ARIMA . You need t o exclude the most rec ent 30 day returns from your modelling in order to compare your 30 day forecasts of returns=against actual= returns=to be able to use the metrics. = See figure below: = = The final step is to measure the accuracy of your forecast by comparing your forecast with actual data of the most recent 30 day s. Do remember, not to use the most recent 30 days for model fitting, and only to compare accuracy of forecast. Use accuracy measures in the references such as RMSPE and MAPE. Submit= your=individual project as a word document. Can the accuracy of your fore cast be improved?= References: = -mean -square -error- rmse-gis/ = -and -statistics/regression -analysis/rmse- root-mean -square - error/ = -excel/ = -kpi -rmse -mae -mape -bias -cdc5703d242d = = =

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