Key steps for the project:
Step 1: select the topic and choose you dependent (1 variable) and set of independent variables
(several variables) (FIT course)
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Dependent variable:
- get the variable related to your topic (you can use the tutorials WRDS and Yahoo Finance
available on IOL either on the project page or on the FIT page)
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calculate the returns of your dependent variable (use the formula in FIT course)
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from the return, create your qualitative dependent variable denoting “Up” and “Down” for the
direction of the return, you can use excel as follow.
a) You have your return over time in column A
b) In column B, start in cell B3 and fill in with =IF(A3>A2;"Up"; "Down"), you should have B3
as either “Up” or “Down” depending on the value of A3 with respect to A2
c) On cell B3 double click on the full square at bottom right of the cell. This will extend your
function for each row of A
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Independent variables:
- you can use whatever you want
- you are not limited on the number of variables, but you must justify your choices
- take maximum 5 variables and justify your choices in the report
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Make some plots, descriptive statistics,…
Step 2: modeling and predicting (econometrics and AI courses)
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Select your train and test samples (see AI course)
Select some models to forecast, evaluate and compare the performance of the models
Choose the “best” one