This was Font/Pitch 1,10 - Off.This was Font/Pitch 1,10 - On.Finance and Business Economics 524
J. K. Dietrich
Group Project
Due November 30, 2005
Purpose of the Group Project and Presentation
The purpose of the group project is for your group to address a well-posed question concerning the nature or performance of financial markets or a current policy issue in order to understand better how sophisticated market participants analyze determinants of important market events or outcomes andevaluate the implications of alternative strategies in these markets. In framing your approach to the problem, students should review the trade and technical literature to identify analytical (modeling) approaches taken by experts and summarize relevant results from previous research. Then, using a clear analytical framework based on the previous research, the group should analyze the question by either replicating previous analysis using updated financial market data or determining whether more recent market results require revisions to previous conclusions.
You should focus your paper on clear statements of the question addressed, methods used to address the question, citations to the literature or sources of the framework for analysis you use, the sources and nature of the data you gather, and a clear evaluation of the evidence you provide in terms of answering the question you are attempting to answer.
You will be graded on the clarity with which you transmit information and focus attention on key issues, on your structuring of the problem and the data you gather to investigate the issues raised by your topic, and on the persuasiveness of your conclusions. However, a long paper is not necessarily better than a concise paper and the written analysis must be no more than five to ten double-spaced (normal margins and type sizes) in length, not including tables and appendices.
I recommend the following basic outline:
1. Question addressed, reason why the question is important or interesting, and summary of previous research on the issue;
2. Description of analysis used to investigate the question and how data and statistics can provide useful answers or insights into the nature of the problem and sources and general characteristic of data gathered;
3. Results of the analysis and implications for the question being analyzed.
4. Criticisms, weaknesses, or concerns about the conclusions reached in your study and possibly a discussion for follow-on analysis or alternative studies which would further resolve the questions discussed or refine your conclusions.
Possible Topics for Group Project
I prefer that you choose a topic you have a personal interest in as long as you discuss it with me (and show me the article or analysis you are basing your project on). However, a list or guide for possible topics is:
(1)Are derivative markets important and have they reduced the variability of underlying markets?
(2)Do futures markets in interest rates or exchange rates predict future rates?
(3)Are forward rates unbiased predictors of future spot rates?
(4)Do government deficits increase interest rates?
(5)Is a government (default-risk free) debt market necessary to price risky private debt issuances?
(6)Are option-pricing models important to the development of options markets and how well do these models predict option values?
(7)What is the extent of the Federal government’s subsidy and possible liability resulting from the obligations of the government-sponsored mortgage financing intermediaries (FNMA and FNMLC)?
(8)Has the European Central Bank been too slow to reduce interest rates relative to the Fed?
(9)Contrast various models of estimating probability of default and assess their predictive power (after surveying the relevant literature on credit risk)
(10)Is there a wealth effect on consumption and, if so, how large is it and how will recent events affect future economic growth?