Forecasting Paper

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Financial Forecasting and Behavioral Finance

Group Project on Financial Forecasting

The purpose of this project is to solidify your concepts on the principles of financial forecasting.

This assignment involves conducting extensive research, gathering historical data and using

statistical software to generate forecasts. You are required to perform the following tasks:

1. Identify a variable of interest (avoid stock prices, interest rates, currency values, gold,

real estate and oil prices.) Explore variables such as company specific financials (output,

sales, salaries, free cash flows, inventory, receivables, overheads, etc.), retail sales, local

unemployment, rental market, electricity production/consumption, airline travel, sports

forecasting, other microeconomic variables, etc.

2. Carry out an extensive research to identify 3-5 explanatory variables which may

potentially impact the future changes in the identified variable of interest. You should be

able to justify the following: (i) why and how the explanatory variables may uniquely

impact the variable of interest (ii) whether the explanatory variables are measurable at the

time the forecast is made. What do you know and when will you know it?

3. Gather historical data on all the variables for at least 100 observations. Use a statistical

software (preferably spreadsheet) to conduct the following analysis:

a. Perform data visualization analysis

b. Perform correlation analysis

c. Estimate multiple regression and interpret the parameters

d. Generate forecasts for the future periods

e. Perform forecast validation

4. The FRED (http://research.stlouisfed.org/fred2/tags/series) and the UHD library

(http://library.uhd.edu/c.php?g=356697&p=2405882) contain several economic and

financial datasets. Use a valid source for your research (academic journals, news

magazine, business news, UHD library etc.) on the choice of explanatory variables.

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Each group is required to submit the following:

(i) Report

(ii) Power Point of Presentation

(iii) Spreadsheet file

Suggested Layout of the Presentation/Report

Recommended Duration for the Presentation: 10 minutes

Your report and presentation should include the following:

1. Importance of the variable of interest – why it is relevant in the real world business?

2. Rationale for choosing the explanatory variables – why and how each explanatory

variable may uniquely impact the variable of interest (What do you know?)

3. Demonstrate that the explanatory variables would be measurable at the time of forecast

(When will you know it?)

4. Analysis of data transformation, visualization and correlations.

5. Interpretation of regression parameters, forecasted values and validation results

Grading Rubric

Importance of the variable of interest 15%

Rationale for choosing the explanatory variables – What do you know? 30%

Demonstrate that variables are measurable in time – When will you know it? 20%

Analysis of data transformation, visualization and correlations 20%

Regression parameters interpretation, forecasted values and validation results 15%