1. 1. STAT7001 Computing for Practical Statistics In-Course Assessment 2 TASK 1: PREDICTION OF THE ISTANBUL STOCK MARKET 2 TASK 2: THE RESISTANCE OF CONSTANTIN 7 APPENDIX A: TASK 1 R CODE 11 APPENDIX B: TASK 2 SAS CODE 26 APPENDIX C: REFERENCES 33
2. 2. Task 1: Prediction of the Istanbul Stock Market Task 1: Prediction of the Istanbul Stock Market Main Question The main task was to use different prediction strategies to predict the daily returns of the Istanbul Stock Exchange (ISE) index based on the data of ISE returns as well as the returns of 7 other stock indices; and compare the performance of these prediction methods by calculating error measures such as RMSE, MAE, and the relative variants of these. For the following report, we apply significance level 5% to all analyses. Summary For benchmarking experiments where ISE returns were predicted based on data from the same day, the models based on other stock indices were significantly better than taking the mean ISE return as a predictor; while the inclusion of time did not result in any significant changes in the goodness of prediction. For benchmarking experiments where predictions were made only based on previous data, the reverse was observed as predictors based only on prior ISE returns performed significantly better than models based on previous stock index returns, suggesting a non-linear relationship may exist between ISE returns and that of previous days. Exploratory Data Analysis Figures 1 to 8. Scatter plots of stock index returns (y-axis) against number of days since earliest record (x-axis), with respective correlation estimates and p-values. From the scatter plots in Figures 1 to 8, it can be seen that there is no apparent association between the returns of stock indices and time, as the location of the index returns do not appear to change with time. A correlation test was performed on each of the stock index returns and time, with the results indicating no apparent linear association between the variables at 95% confidence, as all p-values were greater than 0.05. Figure 1. ISE: cor=-0.0499, p-value=0.2485 Figure 2. S&P 500: cor=0.0245, p-value=0.5714 Figure 3. DAX: cor=0.0299, p-value=0.4891 Figure 4. FTSE 100: cor=0.0190, p-value=0.6615 Figure 5. Nikkei 225: cor=0.00533, p-value=0.9019 Figure 6. Ibovespa: cor=-0.0582, p-value=0.1786 Figure 7. MSCI EU: cor=0.0121, p-value=0.7803 Figure 8. MSCI EM: cor=-0.0538, p-value=0.2136
3. 3. Task 1: Prediction of the Istanbul Stock Market Figures 9 to 16. Scatter plots of stock index returns for day N-1, N-2 and N-3 (y-axis) respectively (left to right) against stock index returns for day N (x-axis), with respective correlation estimates and p-values. The scatter plots in Figures 9 to 16 shows that there is generally no patterns in the stock indices returns against its returns one, two, and three days before. A correlation test has been carried out to confirm this and it suggests that there is no correlation for the all scatter plots except the first one in Figure 16, which shows that there is slightly positive association (cor=0.149) between MSCI EM returns and its returns one day earlier (p-value=0.0005403