Financial Econometrics Syllabus - Carey Business School



Financial Econometrics2 CreditsBU.220.720.XX[NOTE: Each section must have a separate syllabus.][Day & Time / ex: Monday, 6pm-9pm][Start & End Dates / ex: 8/20/18–10/15/18][Semester / ex: Fall 2018][Location / ex: Washington, DC]Instructor[Full Name]Contact Information[Email Address][Phone Number, ###- ###-#### (Optional)]Office Hours[Specify the day and time of the 2 hours that will be dedicated to office hours each week. For evening classes, faculty may wish to hold their office hours by phone or email. While faculty are permitted to state “and by appointment,” office hours should not be held exclusively by appointment.]Texts & Learning MaterialsLecture notes will be posted on Blackboard (likely every Wednesday) before classSuggested Textbooks:James Stock and Mark Watson (2014), Introduction to Econometrics, 3rd EditionJeffrey Wooldridge (2015), Introductory Econometrics, 6th Edition John Campbell, Andrew Lo, and Craig MacKinlay (1997), The Econometrics of Financial MarketsAndrew Ang (2014), Asset Management: A Systematic Approach to Factor InvestingThe first two textbooks provide detailed and intuitive discussions of the modern econometric techniques that have been widely used in economics and finance. Wooldridge (2015) has nice coverage on cross-sectional and panel data whereas Stock and Watson (2014) covers time-series models in details. Campbell, Lo, and MacKinlay (1997) covers many financial applications. Ang (2014) introduces how factors models are used in practice.Course DescriptionFinancial econometrics is the intersection of statistical techniques and finance. It provides a set of empirical tools to analyze historical financial data, model underlying economic mechanisms, and predict future price trends. This course covers both cross-sectional and time-series data. Multivariate regression analysis is developed to study the cross-sectional differences in stock returns of individual firms and associated portfolio models. Applications of these techniques to evaluate the performance of new trading strategies and hedge fund managers are also discussed. Furthermore, time-series models are introduced to model and forecast both time-varying aggregate stock returns and volatility. The course prepares students to conduct empirical research in an academic or business setting. Stata will be used for the class.Prerequisite(s)BU.232.701 AND (BU.510.601 OR BU.914.610)Statement about Finance and Social ResponsibilityThe effectiveness and perceived integrity of finance have been tested in recent years. Along with preventable excesses and regrettable distortions, financial innovation has, however, always been an effective means for society to achieve its goals, from insurance to consumption to saving. The power of financial innovation as a generator of inclusive prosperity and widespread well-being can (and should be) reclaimed. In this context, optimization of shareholder’s value – for instance – may not be the only metric along which financial success is measured and should be placed, along with other traditional finance metrics, in the broader context of its contribution to society. To this extent, Carey encourages technical, non-ideological, exchanges of ideas leading to a better understanding of the broader role of finance as a force for shared prosperity. The first class provides an initial opportunity for technical discussions of these issues as they relate to the topics covered in Financial Econometrics.Learning ObjectivesBy the end of this course, students will be able to: Understand the basic theory of econometric pute ordinary least squares (OLS) estimator.Conduct hypothesis testing of linear regression models.Conduct model evaluation of linear regression models.Learn basic statistical properties of stock returns.Conduct empirical analysis of factor asset pricing models.Conduct basic panel regression analysis.Conduct basic time series regression analysis.To view the complete list of the Carey Business School’s general learning goals and objectives, visit the Carey website.AttendanceParticipants are expected to attend all scheduled class sessions. Failure to attend class will result in an inability to achieve the objectives of the course. Full attendance and active participation are required for you to succeed in this course. Assignments & RubricsAssignmentLearning ObjectivesWeightHomework 11–310%Homework 21–610%Mid-Term (Closed Book, paper based)1–820%Final Exam (Closed Book, paper based)1–850%Total100%Homework (20%)There will be 2 homework assignments, each worth 10%. The assignments have a very important pedagogical role. They are designed to check your understanding of the material covered in class. You cannot work on these in groups. The Homework will be analyzing financial asset returns based on econometric tools covered in class, mostly using Stata, and graded in hundreds. The rubrics of the homework will be posted on Blackboard along with the homework itself.Mid-Term (30%)There will be a midterm exam during week 4. It will be closed-book and paper based. Final Exam (50%)The final exam will be about 3 hours long. It will be closed-book and paper based.GradingThe grade of A is reserved for those who demonstrate extraordinarily excellent performance as determined by the instructor. The grade of A- is awarded only for excellent performance. The grades of B+, B, and B- are awarded for good performance. The grades of C+, C, and C- are awarded for adequate but substandard performance.?The grades of D+, D, and D- are not awarded at the graduate level (undergraduate only). The grade of F indicates the student’s failure to satisfactorily complete the course work.Please note that for Core and Foundation courses, a maximum of 25% of students may be awarded an A or A-; the grade point average of the class should not exceed 3.3. For Elective courses, a maximum of 35% of students may be awarded an A or A-; the grade point average of the class should not exceed 3.4. (For classes with 15 students or fewer, the class GPA cap is waived.)Tentative Course CalendarInstructors reserve the right to alter course content and/or adjust the pace to accommodate class progress. Students are responsible for keeping up with all adjustments to the course calendar.WeekContentReadingGoalHomework1Introduction and ReviewLinear Regression: OLSLecture Note (LN) 1Wooldridge, Ch 1To motivate the usefulness of financial econometrics and go over the necessary statistics knowledge that will be used throughout the course.To introduce OLS estimator2Linear RegressionTheory: OLS & InferenceApplication: EMH and return predictabilityLN 2Wooldridge, Ch 2–4To conduct inference on linear regression models Apply the regression techniques to test properties of asset returnsHW13Time Series RegressionStationarityUnit-root and CointegrationApplication: Return predictabilityLN 3Stock and Watson, Ch 12Introduce more linear time series regression models and their applicationsHW24Nonlinear RegressionGMMMLELN 4Introduce more sophisticated econometric models and techniquesQuiz5Volatility ModelsTheory: GARCHApplication: Risk–return tradeoffLN 5Introduce the volatility models and estimationApply GARCH to test the risk–return tradeoff6Panel RegressionTheory: EstimationApplication: Factor asset pricing modelsLN 6Wooldridge, Ch 13–14To introduce the estimation technique for linear panel regression modelsTo introduce inference tools for linear panel regression modelsHW37Panel RegressionTheory: InferenceApplication: Return anomaliesLN 7Wooldridge, Ch 13–14To introduce inference tools for linear panel regression modelsApply panel regression techniques to test return anomalies8Final ExamPaper-based testCarey Business School Policies and General InformationBlackboard SiteA Blackboard course site is set up for this course. Each student is expected to check the site throughout the semester as Blackboard will be the primary venue for outside classroom communications between the instructors and the students. Students can access the course site at . Support for Blackboard is available at 1-866-669-6138.Disability Support ServicesAll students with disabilities who require accommodations for this course should contact Disability Support Services at their earliest convenience to discuss their specific needs. If you have a documented disability, you must be registered with Disability Support Services (carey.disability@jhu.edu or 410-234-9243) to receive accommodations. For more information, please visit the Disability Support Services webpage.Academic Ethics PolicyCarey expects graduates to be innovative business leaders and exemplary global citizens. The Carey community believes that honesty, integrity, and community responsibility are qualities inherent in an exemplary citizen. The objective of the Academic Ethics Policy (AEP) is to create an environment of trust and respect among all members of the Carey academic community and hold Carey students accountable to the highest standards of academic integrity and excellence.It is the responsibility of every Carey student, faculty member, and staff member to familiarize themselves with the AEP and its procedures. Failure to become acquainted with this information will not excuse any student, faculty, or staff from the responsibility to abide by the AEP. Please contact the Student Services office if you have any questions. For the full policy, please visit the Academic Ethics Policy webpage.Student Conduct CodeThe fundamental purpose of the Johns Hopkins University’s regulation of student conduct is to promote and to protect the health, safety, welfare, property, and rights of all members of the University community as well as to promote the orderly operation of the University and to safeguard its property and facilities. As members of the University community, students accept certain responsibilities which support the educational mission and create an environment in which all students are afforded the same opportunity to succeed academically. Please contact the Student Services office if you have any questions. For the full policy, please visit the Student Conduct Code webpage.Student Success CenterThe Student Success Center offers free online and in-person one-on-one and group coaching in writing, presenting, and quantitative courses. For more information on these services and others, or to book an appointment, please visit the Student Success Center website.Other Important Policies and ServicesStudents are encouraged to consult the Student Handbook and Academic Catalog and Student Services and Resources for information regarding other policies and services.Copyright StatementUnless explicitly allowed by the instructor, course materials, class discussions, and examinations are created for and expected to be used by class participants only.?The recording and rebroadcasting of such material, by any means, is forbidden. Violations are subject to sanctions under the Academic Ethics Policy. ................
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