Try to calculate the mean square errors of the foreacasts.

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Topics covered in this lab:

• basic time series

• ARIMA models

Data Description

Data sp500.txt contains monthly S&P 500 index from January 1947 to June 1993. There is only one variable in the data. Tasks

1. Read in the data from the external text file and plot the data. Submit a copy of the plot (it is better to export the plot in JPEG format).

2. Split the observation into two groups: the first group consists of observations from January 1947 to June 1991, and the second group consists of observations from July 1991 to June 1993.

3. Use the first group of observations to identify an ARIMA model for S&P 500 index and submit the corresponding results.

4. Estimate an ARIMA(0,1,2) model by using the first group of observations and submit the corresponding results.

5. Based on estimation results obtained in the previous step, do forecasting up to June 1993. Plot the forecast along with the true observations. Submit a copy of the plot.

Exercise

1. Try to calculate the mean square errors of the foreacasts.

 

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