69830 - Financial Econometrics A.C.

Learning outcomes

At the end of the course the student deals with the economeric analysis of the main models of asset pricing and the univariate amd multivariate time-series models typically used in finance.
The use of econometric packages and applied work is encouraged.

Course contents

The course is divided into two parts but includes also a preliminary part aimed at making students familiar with the linear regression model based on time series data.

Part one. Basic facts about risk measures based on conditional volatility models.

Part two. Econometric analysis of Present Value (PV) models through Vector Autoregressions (VARs).

 

Preliminary part (background)

Introduction to the linear regression model based on time series data.

Compact matrix representation

Distinction between the "classic" and "generalized" linear regression model.

Efficient estimation e properties of estimators

Testing linear parametric restrictions.

Introduction to diagnostic analysis.

 

 

Part one.

1. Scopes

(a) Prices and returns of financial assets: definitions
(b) Three stylized facts about asset returns
(c) Which time series models of asset returns ?

2. Background & Useful things (Slides 2)
(a) Basic properties of random sequences
(b) Stationary time series, the Weak Law of Large Numbers and the Central Limit Theorem

(c) Algebra of expectations and Martingale Difference Sequences

3. AR, MA, ARMA time series models

4. ARCH and GARCH time series models and their use in
finance

 

Part two.

1.Main present value (PV) relationshisps in nance:
(a) General characterization
(b)The PV model for stock prices and dividends
(c)The PV model for the term structure of interest rates
(d)The PV model for floating exchange rates.
(e)Why OLS are not always valid ?
(f)Why stationarity/nonstationarity matters (introduction to co-integration) ?

2 VAR models:
(a) Representation & forecast
(b) Estimation and inference
(c) OLS estimation
(d) ML estimation
(e) Linear constrained estimation
(f) Testing linear restrictions
(g) Tests for Granger causality
(h) Testing nonlinear restrictions

3. The econometric analysis of PV models:
(a) Stationary case
(b) Nonstationary cointegrated case. SKIP

Readings/Bibliography

Teaching material is provided by the teachar in form of slides. The student can further refer to the following books:

CAMPBELL, J.Y., LO, A.W., MacKINLAY (1997), The econometrics of financial markets, Princeton University Press.

TSAY (2002) Analysis of Financial Time Series, Wiley.

Verbeek, M. (2000), Modern Econometrics, Wiley.

Palomba, G. (2010), Elementi di statistica per l'econometria", Clua Ancona. This text is recommended for students who do not posses a "complete" background in econometrics.

Teaching methods

Theoretical lessons and empirical case studies in the lab.

Assessment methods

Written exam

Teaching tools

Theory and empirical practise in the lab

Links to further information

http://www.rimini.unibo.it/fanelli

Office hours

See the website of Luca Fanelli