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Econometric Modelling Assessed Coursework Project
Econometric Modelling Assessed Coursework Project
Submission Deadline: Monday 25th January 2021
Task: Use appropriate econometric techniques to critically assess competitive conditions of the banking industry in an allocated country.
This coursework exercise should be completed individually. This coursework requires significant time commitment.
A good way to approach this coursework would be to carefully read the published paper (Mathews et al 2007), familiarise yourself with the allocated data file.
The required data for this coursework exercise is provided for each student and it is available on the Module Moodle page.
A copy of the following paper is available on the Module Moodle site and you can use this as a blueprint paper:
Matthews, K., Murinde, V. & Zhao, T. (2007). Competitive conditions among the major British banks, Journal of Banking & Finance, 31, 2025–2042.
The maximum word count for this exercise is 4000 words, excluding appendices, graphs and tables.
You are expected to address the following points as part of this exercise.
- As part of your introduction, briefly describe the reasons for assessing the competitive conditions (section 1 in the paper) in an industry (5 marks).
- Calculate and explain concentration ratios and Herfindahl–Hirschman Indices (HHI) (section 2 in the paper) using the data file assigned to you and provide a full interpretation of these calculated ratios and indices. An example spreadsheet containing all the steps to calculate these ratios is available on the Module Moodle site. (10 marks)
Following the estimated results given in the academic paper quoted above, carry out your own estimations using your data. Remember, the presentation of your results (e.g. tables etc.) is as important as the estimations.
Carefully interpret your estimation results, pay attention to the statistical significance of the estimated coefficients and clearly outline the null and alternative hypothesis for each test. Draw conclusions based on the results.
- Carry out estimations using the OLS estimation method in Eviews software of equations 3 and 5 ((section 4 in the paper and also given below). (The Number of Branches variable is not available in your data file. Hence, you will be carrying out your estimations without this variable)) given in the paper using only full sample and test H and E statistic [Hint: Wald test coefficient Restrictions]. You are not required to carry out the CHOW test. You are also not required to estimate equation 7 in the paper or carry out any analysis based on that equation. Remember, the presentation of your results (e.g. table 4 etc.) is as important as the estimations.
Carefully interpret your estimation results, pay attention to the sign and size of the estimated coefficients and statistical significance of the estimated coefficients and clearly outline the null and alternative hypothesis for each test. Draw conclusions based on the results. (50 marks).
- Assess whether or not multicollinearity is a feature of the estimated model (Equation 2). Discuss available remedies to tackle the problem of multicollinearity. (15 marks)
- Assess whether or not heteroscedasticity is a feature of the estimated model (Equation 2). Discuss available remedies to tackle the problem of heteroscedasticity. (15 marks)
- Provide brief conclusions. Your overall presentation of the report is as important as the various parts of the report (5 marks).
This Econometric Modelling Assessed Coursework Project counts for 100% of your overall assessment for this module.
Please submit your final report to the drop box provided on the module Moodle page by the due date stated above. Essential workings, results and tables may be included as an appendix.
It is your responsibility to process your report through the University Turnitin software. If your similarity score is higher than the maximum University recommended score of 20, your report will be treated according to the University plagiarism regulations.
Marks and feedback will be made available in 20 working days of the original deadline.
Please do not be anxious if you do not have a specialist knowledge of banking. Marks will be awarded based upon your knowledge of econometrics and your ability to interpret/communicate results.
List of variables for the coursework report
You have been individually provided data file containing the following variables which have been downloaded from from the SNL database.
Econometric Modelling Assessed Coursework Project Variables
| Variables | SNL Path | |
| X1 | Total Revenue | Summary Banking Financials / Income & Expenses / Operating Income |
| X2 | Net Profit | Summary Banking Financials / Income & Expenses / Net Profit |
| X3 | Provisions for Loan Losses | Summary Banking Financials / Income & Expenses / Customer Loans Impairment Expense
|
| X4 | Total Assets | Financials / Assets / Total Assets |
| X5 | Fixed Assets | Financials / Assets / Fixed Assets
|
| X6 | Personnel Expense | Financials / Expenses / Personnel Expense |
| X7 | Depreciation and Amortization | Financials / Expenses / Depreciation and Amortization |
| X8 | Total Interest Expense | Financials / Expenses / Interest Expense |
| X9 | Total Equity | Financials / Equity / Total Equity |
| X10 | Real GDP growth rate | From Screener, choose Geographic Intelligence / Select Country / Add-Edit Report Fields / Type ‘Real GDP growth’ |
Following Matthews, Murinde & Zhao (2007), the following variables have to be generated using the above variables which have been stored in a data file allocated to you individually. The Eviews data file containing the above variables is available on the module moodle page and the name the allocated individual has been given in a spreadsheet file.
| REV | Ratio of bank total revenue to total assets (Total Revenue/Total Assets) (X1/X4) |
| ROA | Net profits to total assets (Net Profit/Total Assets) = (X2/X4) |
| PL | Personnel expense to total assets (Personal Expense / Total Assets) = (X6/X4) |
| PK | Depreciation & Amortization to fixed assets (Depreciation & Amortization / Fixed Assets)=(X7/X5) |
| PF | Ratio of total interest expense to total equity (Total Interest Expense / Total Equity)= (X8/X9) |
| RISKASS | Ratio of loan loss provisions to total assets (Provisions for Loan Losses / Total Assets) = (X3/X4) |
| ASSET | Total Assets = (X4) |
| GROWTH | Real GDP growth rate = (X10) |
Variables of interest can be generated in EViews by selecting the Quick button from the workfile toolbar and typing in the relevant formulae. Click on Quick, Generate series button and type learnings = log(earnings) to create log of the variable.
When you create the variables for the coursework assignment, some of these will have negative values. If you attempt to take log of these variables in Eviews which has negative values, Eviews may give you an error message. This is because log can’t be taken of negative values. However, you can use the following formula to take log of a variable which has negative values.
Econometric Modelling Assessed Coursework Project
lny =log(y+sqrt(y^2+1))
For example
lnREV = log(REV+sqrt(TREV^2+1))
Revised Equation 3 (Matthews, Murinde & Zhao (2007)). You will be estimating this equation in Eviews using the above variables.
ln REVit = a0+ a1 ln PLit + a2 ln PKit + a3 ln PFit + b1 ln RISKASSit + b2 ln ASSETit + c3 GROWTHt + eit
Revised Equation 5 (Matthews, Murinde & Zhao (2007)). You will be estimating this equation in Eviews using the above variables.
ln ROAit= a0 + a01 ln PLit + a02 ln PKit + a03 ln PFit + b01 ln RISKASSit + b02 ln ASSETit + + c01 GROWTHt + uit
There are many more references on this topic which you can search for.
University Grade criteria (Levels 4–8) – General (generic) criteria applicable to essays, reports and aspects of projects and dissertations. However, your Econometric Modelling Assessed Coursework Project is technical in nature and criteria is quite general.
| Grade Range | Criteria |
| 80+ | As below plus: · Outstanding work – contains accurate, relevant material, demonstrates understanding of complex subject matter and is able to view it in a wider context. · Shows originality and confidence in analysing and criticising assumptions, is aware of the limits of knowledge. Likely to add new insights to the topic and approaches the quality of published material. · Evidence of extensive research, uses and presents references effectively. · Outstanding quality in terms of organisation, structure, use and flow of language, grammar, spelling, format, presentation, diagrams, tables etc. |
| 70-79 | As below plus: · Outstanding work – contains accurate, relevant material, demonstrates understanding of complex subject matter and is able to view it in a wider context. · Shows originality and confidence in analysing and criticising assumptions, is aware of the limits of knowledge. · Evidence of extensive research, uses and presents references effectively. Excellent in terms of organisation, structure, use and flow of language, grammar, spelling, format, presentation, diagrams, tables etc. |
| 60-69 | As below plus: · Very good work – contains most of the information required, is accurate and relevant and demonstrates understanding of the subject matter and attempts to view it in a wider context. Shows some originality of thought with good critique and analysis assumptions, is aware of the limits of knowledge. · Well-researched, good use and presentation of references. · Very good in terms of organisation, structure, use and flow of language. |
| 50-59 | As below plus: · Work that attempts to address the topic with some understanding and analysis, key aspects of the subject matter covered. · Research extends to primary sources. Appropriately cited and presented references. · Satisfactory presentation with respect to presentation, organisation, language, grammar, spelling, format, diagrams, tables etc. |
| 40-49 | · Adequate work which attempts to address the topic with limited understanding and analysis. · Some research using texts, Internet and key reference sources with reference citation and presentation according to convention. · An attempt to follow directions regarding organization, structure, use and flow of language, grammar, spelling, format, diagrams, tables etc. |
| 30-39 | FAIL – Anything which is inadequate in most or all of the following: length, content, structure, analysis, expression, argument, relevance, research and presentation. Work in this range attempts to address the question / problem but is substantially incomplete and deficient. Serious problems with a number of aspects of language use are often found in work in this range. |
| 0-29 | FAIL – No serious attempt to address the question or problem, and / or manifests a serious misunderstanding of the requirements of the assignment. Acutely deficient in all aspects. |
Econometric Modelling Assessed Coursework Project
