34497 - Introduction to the Econometrics of Asset Pricing

Learning outcomes

At the end of the course the student knows the dynamics of the distribution of returns. He/she is able to perform the analysis of the volatility both with GARCH models and stochastic volatility models. Estimation techniques involves GMM, SML and indirect inference, and also switching regime models to address "peso problem" problems in the analysis of the asset price dynamics.

Course contents

1. The consumption-based model and the SDF
2. Alternative mean-variance frontier and beta representations
3. Regression-based tests of linear models
4. Maximum likelihood inference
5. GMM estimation and testing of SDF pricing models
6. Time series vs. cross-sectional approaches
7. Extensions

Readings/Bibliography

• John. H. Cochrane, "Asset Pricing", Princeton University Press, 2nd ed., 2005.
• Paul A. Ruud, "An Introduction to Classical Econometric Theory", Oxford University Press, 2000.
  
• Further material (including data and software) for this course will be made available from the personal webpage of the lecturer.

Teaching methods

For each topic we will first introduce the relevant theory, and then move as soon as possible to its empirical application. Special emphasis will be placed on the economic interpretation of the results.

Assessment methods

The final exam is written and is is composed of two distinct sections.
The first one is mainly theoretical, and it contains 5 multiple choice questions. The second one is mainly empirical, and it contains 11 questions whose answers shoud be computed using gretl and knowledge of the empirical analysis discussed during classes. Whatever the section, each correct answer yields two points; no penalty is applied to wrong answers. The final mark is the total number of point obtained in the two sections.

Teaching tools

We will discuss several empirical analysis and replicate the results of a few papers using the econometric software gretl.

Office hours

See the website of Sergio Pastorello