INTRODUCTION/COURSE DESCRIPTION
The lectures will focus on the empirical aspects of asset pricing and on the econometrics of financial markets. We start with the fundamental issue, both for investors and researchers in finance, of return predictability. We put forward a number of stylized facts about return predictabiltity. We then study the various asset pricing models (CAPM, APT, intertemporal equilibrium models) and econometric tests of these models to establish if the empirical facts are consistent with the model implications. The empirical validation of the financial models will lead us to present briefly various methods of estimation such as the maximum likelihood approach and the generalized method of moments, corresponding tests as well as linear and nonlinear filtering methods. The last two sections, if enough time remains, will be dedicated to the econometrics of fixed-income securities and of option pricing.
1 RETURNS AND ECONOMETRIC METHODOLOGY
1.1 Returns Distributions
1.2 Econometric Estimation Strategy
1.2.1 Maximum Likelihood Principle
1.2.2 Maximum Likelihood with Conditional Distributions: applications to modeling return volatility and changes in regimes Empirical Methods in Finance
1.2.3 Generalized method of Moments: Estimating Stochastic Discount Factor Models
1.3 Testing Methodology
1.3.1 Introduction to testing
1.3.2 The trilogy of tests
2 THE CAPM MODEL
2.1 Review of basic theoretical concepts
2.2 Estimation and tests
2.3 Empirical results
3 MULTIFACTOR ASSET PRICING MODELS
3.1 Review of basic theoretical concepts
3.2 Estimation and tests
3.3 Empirical Results
3.4 Event Studies
4 PREDICTABILITY OF RETURNS
4.1 Predictability based on past price changes
4.2 Predictability based on other financial or economic variables
5 ESTIMATION AND ASSESSMENT OF INTERTEMPORAL EQUILIBRIUM MODELS
5.1 Different approaches: Calibration, Regressions, Maximum Likelihood, GMM
5.2 Consumption-based asset pricing models with power utility
5.3 More general utility functions: habit formation, recursive utility, state-dependent preferences
6 THE ECONOMETRICS OF FIXED-INCOME SECURITIES
6.1 Models of the term structure of bond yields
6.2 Empirical analysis of dynamic term structure models
6.3 Equilibrium term structure models
7 THE ECONOMETRICS OF OPTION PRICING
7.1 A short survey of continuous-time models
7.2 Equilibrium Option Pricing in Discrete Time
Joint lecture from Mario Schlener, MBA M.A. and DI Bernhard Perner.
COURSE METHODS AND ORGANISATION
Lectures will be organized around book chapters and sets of relevant papers. Students will be encouraged to read such material in order to complete the 4 assignments (groups of three or max 4 students are allowed). After Class 5 there will be a take home case or assignment, which has to be prepared by each single student on its own. The deadline for submitting the take home case will be one months after the Class 5. The grading of the course will be based on the final take home case or assignment (60% of final grade), the four assignments (25% of final grade) and class participation (15% of final grade).
If you want to attend this lecture, please register (LVA-Anmeldung / Course registration).
Best regards, Sandra (FAM-office)
REFERENCE TEXTBOOKS
Campbell, J.Y., Lo, A.W. et MacKinlay, A.C., (CLM) The Econometrics of Financial Markets, Princeton University Press, (1997).
Cochrane, John, (CO) Asset Pricing, Princeton University Press, (2001), revised edition 2005.
OTHER BOOKS OF INTEREST FOR EMPIRICAL FINANCE
Gouriéroux, C., and J. Jasiak , Financial Econometrics: Problems, Models and Methods, Princeton University Press, 2001.
Tsay, R. S., Analysis of Financial Time Series, Wiley Series in Probability and Statistics.
OTHER ECONOMETRICS-ORIENTED BOOKS
Greene, W.H., Econometric Analysis, MacMillan, 1993. Hamilton, J. D., Time Series Analysis, Princeton University Press, 1994.
