Dr. Ka-fu Wong

1. Dr. Ka-fu Wong ECON1003 Analysis of Economic Data

2. Briefing notes about Project A GOALS • Overview of project requirements • Tips on team work, presentation and writing • Assessment scheme • Possible topics • Demonstrate a five-minute presentation • Walk through step by step how the five-minute presentation was prepared. l

3. 30% Projects The project is intended to expose you to the use of statistics in real problems of your choice. The presentations and project reports also help improve and test our understanding of the subject.. It allows us to sharpen our skills in statistical analysis, oral presentations, written presentations, and teamwork.

4. Team work: • Students will be randomly assigned into groups of two to work on two projects. The team as a whole is responsible for the project analysis and implementation. • Individual team members take turns writing the project reports and giving the presentations. The person who gives the oral report cannot be the person who authors the written report. • Thus each project receives three grades, an analysis grade that is given to every team member, a writing grade that is given to the report's author, and a presentation grade that is given to the presenter.

5. Ground rules for team work • Be truthful. • You don’t have to like people to work with them. • Affirm collective responsibility. • Develop and practise listening skills. • Participate fully. • Everyone takes a fair share of the work. • Working to strengths can benefit the group. • Don’t always work to strengths, however! • Keep good records. • Respect group deadlines. • Cultivate philanthropy. • Value creativity and off-the-wall ideas. • Work systematically.

6. Five-minute Presentations: • These presentations will be Powerpoint based. • Please hand in a softcopy of your Powerpoint file, via email. • Presentation will be video-recorded so that presenters has a chance to see their own performance. • Your performance will be graded by your peers and TA. • The instructor will randomly check the grading and videos to make sure that the grading has been fair. • In case of grade disputes, we can sit down to view the tape together.

7. Assessing Presentations • Clarity: Do we understand everything the speaker said? Are at least the main points of the presentation clear? • Content: Is the content appropriate for this assignment? Does the analysis use the appropriate statistical tools? And use it correctly? Is the level appropriate? Is the information accurate? • Organization: Is the talk effectively organized? Is it clear how one idea or fact followed from another? Is there a clear logical progression or structure to the talk? • Delivery: Does the speaker talk clearly and directly to the audience? Does the speaker seem adequately confident and familiar with the material? Are the visual aids used effectively? • Conciseness: Does the speaker express ideas concisely? Too concisely? Does the speaker finish within the alloted time?

8. Tips about presentations • Must use Powerpoint for presentations. • Do not use too many animations. • Use colors to highlight your analysis. • Understand the materials well. • Try not to rely on notes: audiences have more confidence in speakers who don't rely much on notes. • Practise, practise, practise: • To get a feeling about timing. • To get rid of some nervous habits (fiddling with a button, putting a hand in a pocket, saying “um”). • Trian our eye contact with audience. • Do we understand everything the speaker said? Are at least the main points of the presentation clear?

9. Three to five page Written reports: • No more than five pages. • Please hand in a softcopy of your report, via email. • All papers should be easy to read, i.e. typed (word processed) in a standard 12pt font with reasonable margins and 1.5 to double spaced. • When writing up the project, in addition to your discussion of results, you should include a clear description of the experiment, including how the data was collected, and a summary of steps of your analysis. The collected data and questionnaire (if any) should be included in a data appendix. • The TA (and possibly your peers) will be grading it. • The instructor will randomly check the grading to make sure that the grading has been fair.

10. Assessing Written Report • Clarity: Do we understand everything in the report? Are at least the main points of the report clear? Does the report give us enough information for us to repeat the analysis ourselves? • Content: Is the content appropriate for this assignment? Does the analysis use the appropriate statistical tools? And use it correctly? Is the level appropriate? Is the information accurate? • Organization: Is the paper effectively organized? Is it clear how one idea or fact followed from another? Is there a clear logical progression or structure in the paper? • Grammar and spelling: Are there any misspellings or major grammatical errors so as to impede reader’s understanding? • Format: Is the report double spaced? Does it has paragraph structure? Correct punctuation?

11. Tips about writing • Structure of the report: • Title page: one- to two-line simple title. Include the names and student ids of the group members. • Introduction: State the aims and terms fo reference of the report and any useful background information. • Data description: How we collect the raw data? What are the raw data? Do we transform the data before use? • Results: descriptive statistics, tables, plots and an analysis of them. • Conclusion: Whatever conclusion we can draw from the analysis. • Appendices: Questionnaire form. List of data. All appendices must be referred to in the main body of the report. • References: Books and websites referred in the report. 3 to 5 pages.

12. Tips about writing • Have a good understanding of the subject to be covered. Read thoroughly and widely, discuss the subject with others and sometimes just sit and think. • Sort your ideas out. If you have ideas clear in your mind then usually your written work will be clear. • Think about your audience. Your style of writing should affect the way you write and what you include in the report. • Produce a plan so that you put your ideas down in a logical sequence. Nothing confuses a reader more than disjointed arguments. You can probably fit your ideas into four or five main headings.

13. Tips about writing • Must be typed in Microsoft Words. • Use the require format. Standard 12pt font with reasonable margins and 1.5 to double spaced. • Write a draft - you are unlikely to get it right first time. If you have time put it aside for a while and go back and re-read it - you will be surprised how different it looks. • Write the final report. Remember to acknowledge sources of information and quotes (references and bibliography). • Proof read it. Don’t rely on your spell checker - their are sum flings a spell chequer will knot pick up!! • Strunk and White: The elements of style is a good handbook on writing.

14. Tips about writingBibliography/References Style. • This section should be arranged alphabetically by author then by URL if it doesn't have an author (alphabetically). • If the reference takes up more than one line the 2nd and proceeding lines should all be indented but not the first line!

15. Tips about writingBibliography/References Style. • When citing a work in the body of the text put the authors name and the publication date in parenthesis near the end of the sentence with the referenced material. This is an example. • The birth timing can be viewed as a way of giving a capital endowment to the next generation by the parents, akin to the human capital theory of Gary Becker (1964). This view is of course consistent with the news report cited above. Thus, a simple modification of the standard returns-to-education methodology (e.g. Mincer, 1974; Psacharopoulos, 1994; Bennell, 1998; and Wei et al., 1999) is appropriate to verify empirically whether this superstition is correct or not.

16. Tips about writingBibliography/References Style. • General Style Author. Year. Title. Secondary Title, Secondary Author. Place Published: Publisher, pp. Pages. • Book Author. Year. Title, Edition, Volume, Series Editor, City: Publisher, pp. Pages. • Book Section Author. Year. Section Title. Book Title, Editor, ed. City: Publisher, pp. Pages. • Journal Article Author Year. Title. Journal Volume, Pages.

17. Tips about writingBibliography/References Style. • WEB sites include the URL (e.g. http://www.albany.edu) And the name of the School or University /Department/ Faculty/ or Company/organization that runs the site. If they have references you should site the originals by looking the appropriate one up in the library. • Handouts Instructor (last name first), Handout Title, Course Number, Semester & Year, School, pp. pages.

18. An Element of Peer Assessment • Peer assessment helps us learn: • On presentation: Being critical on someone else’s presentation, peer assessment help alert us to good and bad practice in presentations. It help us develop awareness of the style and process dimensions of presentations. • On writing report: Being critical on someone else’s work, peer assessment help alert us to good and bad practice in report writing. It help us develop awareness of the importance of structure, coherence and layout in reports. • TA assessment • Instructor will make sure that the grading has been fair – by random inspections. 75% 25%

19. Need a second chance? • Students can choose to work on a second project if they feel that their second project can improve a lot over their first project. • However, they must work on a different project. • All team members must agree to do so. • Their grades on project A will be based solely on the last presentations and reports. • Most students would not need a second chance if they follow our tips.

20. Project topics: • Two types of projects. • Type A will involve simple plots of data, summary statistics, and analysis – in the first half of the semester. • Type B will involve estimating the relationship among variables and testing their significance – in the second half of the semester. • The team is free to choose among a pool of projects (supplied by the instructor, to be announced later). You are encouraged to choose topics outside this pool. However, if you have different project topics, you must get approval from your instructor.

21. Examples of Type A Project topics: On Finance • Randomly select a sample of stock mutual funds, and record their total return during the preceding calendar year. Summarize your data with a box plot and histogram, and compare the mean and median return for the funds in your sample to the return for the Hang Seng Index that year. Also calculate the fractions of your sample within 1 and 2 standard deviations of the sample mean. • Visit the library and ask the librarian (reference counter) to help locate the electronic data series of HK stock prices. Collect the prices of two stocks, one over 10 dollars and one below 10 dollars. Compute their mean and standard deviations of daily percentage change in prices. Based on the plots and these summary statistics, which stock is more risky? Which stock is more profitable to hold? (using Sharpe Ratio as a measure?)

22. Examples of Type A Project topics: On Finance • Collect the daily prices of Shanghai A Shares in 2002. Compute their Sharpe Ratios. Summarize the data. • Collect the daily prices of Shanghai B Shares in 2002. Compute their Sharpe Ratios. Summarize the data. • Collect the daily prices of Chinese stocks that are listed under both Shanghai A, Shanghai B. Compute their price ratios between A and B. Summarize the data. • Collect the share price of HSBC and its derivatives (warrants, options, etc.) over time. Compute their ratio. Summarize the data.

23. Examples of Type A Project topics: On International Finance • Find the daily exchange rate for Yen/USD from 1996 to 2002. Compute the daily absolute changes of the exchange rate. Split the sample into two (before 1998 and after 1998). Compute their mean and standard deviations. Is the mean absolute change in the after 1998 within two standard deviations of the before 1998 sample? • Visit at least 30 foreign exchange shops (including banks). Record the buy and sell exchange rate of RMB to HK dollars. Based on simple plots and summary statistics, are the buy and sell spread (difference between buy and sell price) different between bank and non-bank foreign exchange shops.

24. Examples of Type A Project topics: On International Finance • Collect the IMF debt of different IMF member countries. Compute the mean and variance. Is Thailand within the two standard deviations? How about South Korea and Argentina? • Find the recent issue of Economist and Far Eastern Economic Review. Copy the newsstand price listed on the cover. Convert them into US dollars according to a recent exchange rate. Is there any difference between the prices of the two magazines.

25. Examples of Type A Project topics: On Public Finance • Collect the government’s expenditure share on education as a percentage of GDP in Hong Kong in the past twenty years. Describe the data. Compute the mean and variance. If there is a 10% cut in education spending, will the expenditure share fall within the two standard deviations? • Collect the government’s expenditure share on health care as a percentage of GDP in Hong Kong in the past twenty years. Describe the data. Compute the mean and variance. If there is a 10% cut in health care spending, will the expenditure share fall within the two standard deviations? • Collect the contribution of land sales to government revenue in Hong Kong (percentage) in the past twenty years. Describe the data. Compute the mean and variance.

26. Examples of Type A Project topics: On Personal Finance • Ask at least 30 HKU students how many credit cards they own. Summarize the data. Ask another 30 CUHK students how many credit cards they own. Compare that with the HKU result. • During Chinese New Year, all you have to say is “Gung Hay Fat Choy,” for relatives a generation or more older to give you some nice, crisp greenbacks in red envelopes called lai see in Cantonese. Ask 50 HKU students how much lai see they received this year. Summarize the data.

27. Examples of Type A Project topics: On Price Differentials • Visit at least 30 shops / machines that provide instant photos services, at least 10 near the Immigration Department office and the China Travel Agency which handle application for passports. Record their prices. Do prices vary across locations? How? • Visit at least 30 photo shops. Record the prices of 3R photo print from films. Do prices vary across locations? How? • Visit at least 30 shops that sell the same two models of sport shoes. Record their prices. Compute the price ratio between the two models. Plot the ratio against the price of the cheaper model.

28. Examples of Type A Project topics: On Price Differentials • Visit at least 30 bakery shops. Record the price of “pineapple” and “chicken tail”. Also record whether they have a policy of price reduction after certain hour. Compute the means for the shops that has price reduction policy and those without. Is the mean with price reduction policy within the two standard deviations of the ones without? (For interest: ask the shopkeepers what they do with the unsold bread.) • Visit at least 30 drug stores. Include at least 10 non-chained stores and at least 10 chained stores. Record the price of one or more pain killers (e.g., Penadol). Compute the mean for the non-chained stores. Is the mean of the chained stores within the two standard deviations of the non-chained? Is the mean of the non-chained stores within the two standard deviations of the chained?

29. Examples of Type A Project topics: On Price Differentials • Visit at least 30 small private clinics. Record the charge of a typical visit to the doctors (say, due to a flu). Compute the mean and standard deviations of the charges. Are the charges of large hospitals within the two standard deviations of the mean of the smaller private clinics? • Visit at least 30 shops selling fresh orange juice. Record the price of a cup of fresh orange juice. Compute the mean and standard deviations of the prices. Are the prices of non-fresh orange juice inside the two standard deviation of the mean of the fresh orange juice?

30. Examples of Type A Project topics: On Price Differentials • Browse through www.amazon.com (US Amazon) and www.amazon.com.uk (UK Amazon) for the same 30 books. Record their prices. Compute the mean and variance of the prices from these two shops. Is the mean price of the US Amazon within the two standard deviation of that of UK Amazon. (Remember to convert to the same currency for comparison.) • Visit at least 30 soft drink vending machines. Record their prices. Summarize the data. Do prices vary across locations? How?

31. Examples of Type A Project topics: On Price Differentials • Visit at least 30 restaurants. Record the price of a cup of milk tea. Describe the data. • Visit at least 30 restaurants. Record the price of a set lunch and what’s included. Compute the means and standard deviations for set lunches with more than three items included and set lunches with less than three items included. Are the mean of those with more than three items within the two standard deviations of those with less than three items? And vice versa?

32. Examples of Type A Project topics: On Price Differentials • Find the daily wholesale price of fresh chicken in 2002. Compute the means and standard deviations of chicken for the year and for the month that contains Chinese New Year. Are the mean of Chinese New Year month within the two standard deviations of the year? • Visit at least 30 shops selling vegetables from two different districts. Include at least 10 shops from each district. Record the price of selected vegetable. Compute their means and standard deviations. Is the mean of the first district within two standard deviations of the second district? And vice versa?

33. Examples of Type A Project topics: On Price Differentials • Go to a local store that sells CDs and record the prices of at least 50 recent CDs. Also record the total playing time for those CDs that display this information. Use a histogram to summarize each of these data sets. For those CDs that show the playing times, make a scatter diagram with the playing time on the horizontal axis and the price on the vertical axis. • Choose two major grocery stores in your area, and try to determine which has lower prices on a sample of 30 commonly purchased items. • Two 7-eleven stores?

34. Examples of Type A Project topics: On Price Differentials • Collect data from at least 10 private or public day care centers on the hourly cost of day care for a 4-year-old child who will be in day care for at least 10 hours per week. Summarize these data in the form of a report to parents who may want day care for their child. • Browse through an on-line bookstore that sells English books and an on-line bookstore (in China?) that sells a translated (Chinese) version of the same book. Record their prices. Compute the ratio of their prices. Summarize the data.

35. Examples of Type A Project topics: On auction • Find the auction price of flower market sites of Victoria Park for the past two years. Compute their mean and standard deviations. Is the mean in the second year within two standard deviations of the first year? • Land auction? • License plate auction? • Online auction of computer parts / photographic items?

36. Examples of Type A Project topics: On Macroeconomics • Collect the GDP per capita data of OECD countries. Compute their mean and variance. Is China’s GDP per capita within the two standard deviations? Is Hong Kong’s GDP per capita within the two standard deviations? • Collect the contribution of manufacturing sector to GDP in Hong Kong (percentage) in the past twenty years. Describe the data. Compute the mean and variance. • Collect the consumer price index (All) in Hong Kong. Compute the annual inflation rates. Summarize the data. • Unemployment rate?

37. Examples of Type A Project topics: On Labor Economics / Demography • Find HK population for different age groups over time. Compute the dependency ratio = [population under age 15 and above age 65] / [working-age population (those aged 15-64)]. Split the sample into two (first half and second half). Compute their mean and standard deviations. Is the mean dependency ratio in the second half within two standard deviations of the first half sample? • Find HK labor force participation rates by gender over time. Compute ratio of female labor force participation rate to that of male. Split the sample into two (first half and second half). Compute their mean and standard deviations. Is the mean ratio in the second half within two standard deviations of the first half sample?

38. Examples of Type A Project topics: On Labor Economics / Demography • Ask at least 30 employed person (with a full-time job) how many hours do they work in a week on average. • Collect the number of suicide cases in Hong Kong, by year. Summarize the data. • Number of injury • Number of robbery

39. Examples of Type A Project topics: Miscellaneous • Randomly ask 50 HKU students the average amount of time per week they spent on studying in the semester before the survey. Summarize the data in a plot. Compute the means and standard deviations. Ask your friends from different local universities the same question. Are they within the two standard deviations from the mean at HKU? • Randomly ask 50 HKU students the amount of money spent on the last hair cut. Compute the means and standard deviations. Ask your friends from different local universities the same question. Are they within the two standard deviations from the mean at HKU?

40. Examples of Type A Project topics: Miscellaneous • Find the temperature in Hong Kong over time. Summarize these data with a histogram and calculate the fraction of the readings that are within 1 and 2 standard deviations of the sample mean. Split the sample into two (first half and second half). Compute their mean and standard deviations. Is the mean temperature in the second half within two standard deviations of the first half sample? What can we conclude about HK’s temperature over time? • Find the all the Mark-Six Jackpot in year 2001 and 2002 (available from on-line). Summarize the data with a plot. Compute the mean of the Jackpot for 2001 and 2002. Are the mean of 2002 within the two standard deviations of 2001? And vice versa?

41. Examples of Type A Project topics: Miscellaneous • Randomly ask 50 HKU students and 50 CUHK students their grade point averages in the most recent semester. Compute their means and standard deviations. Is the CUHK mean within the two standard deviations from the mean at HKU? • Randomly ask 50 HKU students how much sleep they get on the night before the survey. Compute the means and standard deviations. Is your sleeping hours within the two standard deviations from the mean?

42. Examples of Type A Project topics: Miscellaneous • Randomly ask 50 HKU students (exclude those who live in dorms) the amount of time spent on traveling to school by HKU students. Compute the means and standard deviations. Ask your friends from different local universities the same question. Are they within the two standard deviations from the mean at HKU? • Find the all the Mark-Six Winning numbers in year 2001 and 2002. Sum the six numbers. Compute the mean of the sums for 2001 and 2002. Are the mean of 2002 within the two standard deviations of 2001? And vice versa?

43. Examples of Type A Project topics: Miscellaneous • Find the air quality in Hong Kong over time. Summarize these data with a histogram and calculate the fraction of the readings that are within 1 and 2 standard deviations of the sample mean. Split the sample into two (first half and second half). Compute their mean and standard deviations. Is the mean air quality in the second half within two standard deviations of the first half sample? What can we conclude about HK’s air quality over time? • Rain fall in Hong Kong over time.

44. Examples of Type A Project topics: Miscellaneous • Find the quantity of water we buy from mainland China and the usage of water per capita in Hong Kong over time. Split the sample into two (first half and second half). Compute their mean and standard deviations. Is the water usage per capital in the second half within two standard deviations of the first half sample? What can we conclude about HK’s excess water supply and the associate additional cost over time?

45. Frequently asked questions Student: I do not want to do a survey. I prefer to download data. None of the topics interests me. What can I do? Teacher: Try to look at the databases that are available at our library and on the internet. A useful guide is the Powerpoint file datacorner.ppt. Some of the data might interest you. You can also ask me for additional topics.

46. The Performance of Buy-and-Hold strategy of 33 Individual HSI constituent stocks Ka-fu WONG (Presenter) & Alice LEE (Writer)

47. Buy and hold strategy • Buy the stock at the beginning of the year. • Hold the stock until the end of the year.

48. Performance measure • Sharpe Ratio: • Mean daily returns / standard deviation of daily returns • Assume the benchmark portfolio returns to be zero. • Let Dt be the daily return on the stock

49. Data sources and description • Prices of 33 Hang Seng Index constituent stocks from DataStream. • Data coverage: 1 January to 31 December 2002 • 262 observations of prices per stock, Pt. • 261 observations of returns per stock, Dt. • Dt = log(Pt+1) – log( Pt)

50. Descriptive statistics On average, HSI constituent stocks had a negative Sharpe Ratio or mean returns. NEW WORLD DEV CNOOC LTD. At least 75% of stocks had a negative Sharpe ratios or mean returns Right skewed