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CF Steps

The document provides a comprehensive guide on using EViews for computational finance, detailing steps for creating lagged series, calculating differences, returns, and generating graphs. It also covers statistical tests such as ADF for stationarity, ARMA and Auto ARIMA modeling, and diagnostic checks for residuals. Additionally, it outlines hypothesis testing for unit roots, cointegration, heteroskedasticity, and normality of residuals.

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Gayathri Santosh
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10 views5 pages

CF Steps

The document provides a comprehensive guide on using EViews for computational finance, detailing steps for creating lagged series, calculating differences, returns, and generating graphs. It also covers statistical tests such as ADF for stationarity, ARMA and Auto ARIMA modeling, and diagnostic checks for residuals. Additionally, it outlines hypothesis testing for unit roots, cointegration, heteroskedasticity, and normality of residuals.

Uploaded by

Gayathri Santosh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Computational Finance

EViews
1. For creating lag:

Open file
Quick  Generate series
Equation: lag1=close(-1), lag2=close(-2)

2. First difference:

Quick  Generate series


fd=d(close)

3. Second difference:

Quick  Generate series


sd=d(close,2)

4. Returns:

Quick  Generate series


Closeret=d(log(close))

5. For creating graph:

Open close/ closeret


View  graph
Ok for the dialogue box

6. ACF(MA), PACF(AR):

Quick  series statistics  Correlogram


Series name: close / closeret (depends on question)

Inference:
See partial correlation
If first 10 observations are within the lines, then it is non significant.
If not, it is significant, so we need to find close return and repeat
ACF.

7. ADF:

Augmented Dickey Fuller Test

Click (Open) closeret


View  Unit root tests  Standard Unit Root tests
Automatic selection: Change to AIC

Inference:
Hypothesis:
H0: There is a unit root – non stationary.
H1: There is no unit root - stationary.

If p value (Prob.*) is less than alpha(0.05), reject null.

8. ARMA (manual):

Click (Open) closeret


Quick  Estimate equation
Closeret c ar(1) ma(1)
Closeret c ar(1) ar(2) ma(1)
.
.
Continue….

For the table value, refer AIC value.


Start table from ar(0), ma(0).

Inference:
Model having the lowest AIC value is the best choice as it balances
goodness of fit and model complexity.
Eg: like ar(1) ma(4)

9. Auto ARIMA:

Fist to find: fd
Click fd  Proc  Automatic ARIMA Forecasting

10. Auto ARIMA forecasting:

Fist to find: fd

Click range
Give the start date as same in the file
Give the end date as needed in the question
Like, if the question is given as forecast for 5 days, give the end
date 5 days after the date in the question (look for Saturday and Sunday –
If it has add dates accordingly 6 or 7).

Give yes for insert n(like 5) of observations


Give no for the coming dialogue boxes.

Click fd  Proc  Automatic ARIMA Forecasting


Change:
The date to original as in Estimation sample
Forecast length – 5 (the number of days needed to forecast)
Max AR – 5, Max MA – 5
Click Options:
Select (Tick) all (4) table and graph
11. ARIMA Forecasting (manual):
Click (Open) closeret
Quick  Estimate equation
fd c ar(1) ma(1)
fd c ar(1) ar(2) ma(1)
.
.
Continue….

12. For residual table and graph (Only for forecasting):

Find closeret
Click closeret
Quick  Estimate equation
Give the ARMA equation of the best model.
Eg: If (2,3) is the best model selected from ARMA, then give the
equation as
Closeret c ar(1) ar(2) ma(1) ma(2) ma(3).

Then click view  Actual, fitted residual  Actual, fitted residual


table/graph.

13. Diagnostic checking:

Quick  Estimate Equation (equation of the obtained ARIMA model eg-


(2,2) here) d(close) c ar(1) ar(2) ma(1) ma(2) .

View  Residual Diagnostics  Correlation Q statistics:


Correlation squared residuals
Histogram (Normality tests)
Heteroskedasticity Tests

(i) Correlation Q statistics:


Give ok (default) for lag to include
Look for significance as usual like ACF and PACF ( within lines)
(ii) Correlation squared residuals:
Give ok (default) for lag to include
Look for significance as usual like ACF and PACF ( within lines)

(iii) Histogram (Normality tests):


Check the shape of the curve for normality, skewness and Kurtosis.

(iv) Heteroskedasticity Tests:


Test type: ARCH
Number of lags: default
Check the probability of the lag. If it is less than 0.05, presence of
heteroskedasticity.

Check p value(Prob.*) at RESID^2(-1)

14. VAR:
Open file (spot fut)
Quick series statistics  unit root test  give spot_ret and etf_ret
See the prob value and estimate the significance based on the value p<
alpha or not
Again,
Click quick Estimate Var
In endogeneous variable  give Spot_ret and etf_ret  OK
In that tab Click view  lag structure  lag length criteria
See the AIC * value ( which is lowest ) (don’t close the tab)
In that tab click forecast and cancel
Write the 2 equation

15. VECM:
Checking Cointegration:
Quick  group statistics  johansens OK
See none value whether it is cointegrated or not (P< Alpha)
If the test is cointegrated proceed the following

Next…..
Open file ( Coint )
Select Nifty and nifty bees (both)
Right click the both  open  as group
In that tab  Quick  estimate var
In var type vector error correction
In endogeneous  Nifty, Niftybees
Click proc  make system  order by variable  Equation will come
Write those two eqations.

TIME SERIES MODELLING STEPS:

1. Identification:
(i) ACF, PACF (significance)
(ii) ADF (unit root – stationarity)

2. Estimation:
ARMA, ARIMA manual (best model – lowest AIC Value)
Auto ARIMA

3. Diagnostic Checking:
Residuals  Correlation Q statistics (significance)
Correlation squared residuals (significance)
Histogram (Normality tests)
Heteroskedasticity Tests (significance)

4. Forecasting:

HYPOTHESIS:
1. ADF Test:
H0: There is a unit root – non stationary.
H1: There is no unit root - stationary.

If p value (Prob.*) is less than alpha(0.05), reject null.

2. Johansen’s Cointegration Test:


H0: There is no cointegration.
H1: There is a cointegration.

See p value(prob.*) for none in both Rank test and eigen value

3. Heteroskedsticity:
Null hyp: There is no heteroskedasticity in the residuals.
Alt hyp: There is heteroskedasticity in the residuals

If the p-value > 0.05, fail to reject H₀ → No significant


heteroskedasticity.
If the p-value ≤ 0.05, reject H₀ → Heteroskedasticity is present.
4. Normality Tests:
Null Hyp: The residuals follow a normal distribution.
Alt Hyp: The residuals do *not* follow a normal distribution.
- If *p-value > 0.05* → Fail to reject H₀ → Residuals are *normally
distributed*.
- If *p-value < 0.05* → Reject H₀ → Residuals are *not normally
distributed*. If *Jarque-Bera statistic * is high eg: (35.21850) ,
that shows*significant non-normality* in the residuals.

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