FIN 5620 â€“ Investments
Project 1: Beta and Return.
This homework must be completed individually.
The objectives of this exercise:
- To access and download stock and index price data from yahoo.com.
- To discern the difference between a real-time closing price and an adjusted price.
- To discover how yahoo.com calculates beta for an individual stock.
- To replicate the yahoo.com calculation for twenty firms in the S&P 500 index, tabulate the results and report your findings.
Students should be able to:
- Identify individual stocks in the S&P 500 index and discuss the composition of the S&P 500 index.
- Collect financial data including closing stock prices and adjusted stock prices.
- Estimate beta from historical data.
- Tabulate regression results and discuss empirical findings.
- You will be assigned twenty (20) stocks from the current S&P 500 index. You must use these 20 stocks (or, more precisely, the ticker symbols) to download data from yahoo.com. Go to yahoo.com, then Finance, then type in your ticker symbol. Next choose Historical Prices from the tabs on the left. Tag â€œMonthlyâ€ then choose the appropriate dates (to be determined below). Click Get Prices, scroll to the bottom of the page and download to spreadsheet (it is actually saved as a â€˜.csvâ€™ file, but it will open okay in Excel). The last month of return data should be March 2015. Be sure to use end-of-month data! Yahoo might print a beginning of month date in the monthly output, but it should be end of month. To check this, look at the daily data and verify that the last day of the month is used in the monthly spreadsheet (it should be if you wait until after the sample period to collect your data).
- You must determine how exactly yahoo.com calculates historical beta, then replicate their calculations. This requires the use of regression software (or functions in Excel, if you know how to do that). Note, you must calculate returns first. Is the data sorted correctly â€“ in time order? If not, you must sort your stock prices and market prices so that the oldest prices are first, then calculate returns.
Answer the following questions:
- How, exactly, does yahoo.com calculate their beta? How many months of return data do they use? How many months of price data do you need? How do you know that you and Yahoo used the same data period?
- Should you use closing price or adjusted price when calculating returns? Why?
- What is the market proxy? What ticker did you use for your market proxy?
- After calculating returns for your twenty stocks and the market, you must calculate beta for each of your twenty stocks. Create a Table showing the following: Ticker, Company Name, yahoo beta, calculated beta, intercept and r-square from your regressions.
- Do your regression results match yahoo.com results? Why or why not?
You must submit a brief write-up of your results. Your paper should be detailed enough so that someone else could pick up your paper and replicate your results. So, you will need a brief introduction describing your data sources, how you manipulated the data, how you calculated returns, how you calculated beta, a Table, and a brief summary and discussion of your findings. In total, you must submit:
- Your write-up as a Word file including the Table described above in Guideline #3 and your answers to the various questions.
- An Excel spreadsheet (one sheet), properly formatted, containing the ticker symbol, closing price, adjusted price and dates (dates should be the same for each ticker) for each of your twenty stocks and your market proxy.
- Another Excel spreadsheet, properly formatted, detailing how, exactly, you calculated the results in your Table (i.e., replicate the detailed findings for your stocks). The two Excel worksheets should be in one file with two different labeled worksheet tabs. Alternatively, you may use 20 Excel sheets named with the ticker symbol if you wish to combine the date, ticker symbol, closing price, adjusted closing price, and calculations and/or regressions separately for each of your 20 companies.
|DLTR||Dollar Tree Inc|
|D||Dominion Resources Inc|
|DPS||Dr Pepper Snapple Group|
|DUK||Duke Energy Corp|
|DNB||Dun & Bradstreet Corp|
|ETFC||E*TRADE Financial Corp|
|DD||E. I. du Pont de Nemours and Company|
|EMN||Eastman Chemical Co|
|ETN||Eaton Corp plc|
|EW||Edwards Lifesciences Corp|
|EMR||Emerson Electric Co|