EXC 3610 Empirical Methods in Finance

APPLIES TO ACADEMIC YEAR 2012/2013

EXC 3610 Empirical Methods in Finance

Responsible for the course
Kjell Jørgensen

Department
Department of Financial Economics

Term
According to study plan

ECTS Credits
7,5

Language of instruction
English

Introduction
Welcome to Empirical Methods in Finance. The importance of this course can be summarised in the following three questions: 1) What do I need to be able to identify the empirical predictions of a financial or economic theory? 2) What do I need to be able to test the empirical predictions of the theory? 3) What do I need to be able to critically evaluate the research methodology used in financial research? Answer: Empirical Methods in Finance.

Learning outcome
The aims of this course are to introduce students to important econometric techniques that are used in empirical finance and to create awareness with students of how these techniques can be applied. More specifically, on completion of the course the students’ acquired knowledge and skills should be as follows:

Acquired knowledge
On completion of the course students should:
  • Understand the importance of basic data handling involving different graphical representations, descriptive statistics such as the mean, median, variance, standard deviation, skewness, kurtosis.
  • Be able to interpret the above mentioned numerical measures.
  • Understand what is meant by correlation and regression analysis - and the difference between them.
  • Understand that correlation is not causation.
  • Understand some of the peculiarities of financial data.
  • Understand the difference between an econometric model and a financial model.
  • Understand what is meant by Ordinary Least Squares (OLS) - the estimation technique used in order to estimate our econometric model.
  • Understand how to interpret the estimated model.
  • Understand the statistical assumptions that OLS rests upon.
  • Understand the concept of Autoregressive (AR) modelling.
  • Understand, at a basic level, important time series issues such as Stationarity, Cointegration and Error Correction (ECM) modelling.
  • Understand the difference between the unconditional and conditional variance and how the latter can be modelled with an ARCH-type model.

Acquired skills
On completion of the course students should be able to use software like Eviews in order to:
  • Perform basic data handling
  • Estimate financial models formulated as linear regression models (Econometric models).
  • Test the statistical assumptions underlying OLS.
  • Take corrective action if some of these assumpyions are violated.
  • Estimate AR models.
  • Test for Stationarity and Cointegration.
  • Estimate Error Correction Models (ECMs).
  • Test for ARCH effects.
  • Estimate basic ARCH models and GARCH(1,1) models

Prerequisites
Basic statistics course

Compulsory reading
Books:
Koop, Gary. 2006. Analysis of financial data. John Wiley. Kap.1-10, 12

Recommended reading

Course outline
This course introduces students to modern econometric techniques that are relevant for empirical research in finance. More specifically, the course content is as follows:
  1. Basic data handling.
  2. Correlation and simple regression analysis.
  3. Multiple regression analysis.
  4. Statistical aspects of the OLS estimation technique.
  5. Regression with dummy variables.
  6. Regression with lagged explanatory variables.
  7. Univariate time series analysis.
  8. Times series issues (Stationarity, Cointegration and Error Correction)
  9. Financial volatility.

Each topic will be accompanied by a hands-on practical application of an empirical finance topic. The software package Eviews will be an integral part of the lectures and the coursework

Computer-based tools
The software package Eviews will be available on BI's computers. Other tools include ISI web of science, Business Source Complete, Google Scholar, It's Learning.

Learning process and workload
The course will consist of a combination of lectures and plenary tutorials where solutions to exercises will be explained.

Please note that whilst attendance is not compulsory, it is the students responsibility to obtain any information provided in class that is not included on the course homepage/It's learning or in the text book.

A course of 7,5 ECTS credits corresponds to a workload of 200 hours. The following is an indication of the time required for different activities:
Activity
Hours
Lectures
39
Plenary tutorials where exercises will be explained
6
Preparation for lectures and plenary tutorials
110
Preparation for the final examination
45
Total recommended use of time
200


    Examination
    The final grade in the course will be based on the following activities and weightings:

    40% class work (in the form of a mix of some/ all of the following: hand in of case write ups, projects, and homeworks; case presentations and class participation; in class midterm and quizzes).
    60% 3 hour written final exam.
    Both parts of the evaluation need to be passed in order to get a grade in the course.

    Specific information regarding student evaluation beyond the information given in the course description will be provided in class. This information may be relevant for requirements for termpapers or other hand-ins, and/or where class participation can be one for several elements of the overall evaluation.

    This is a course with continuous assessment (several exam elements) and one final exam code. Each exam element will be graded using points on a scale (e.g. 0-100). The elements will be weighted together according to the information in the course description in order to calculate the final letter grade for the course. You will find detailed information about the point system and the cut off points with reference to the letter grades on the course site in It’s Learning.

    Examination code(s)
    EXC 36101 - Process evaluation, counts 100% towards final grade in EXC 3610 Empirical Methods in Finance, 7,5 credits.

    Examination support materials
    A BI-approved examination calculator, TEXAS INSTRUMENTS BA II Plus™
    One bilingual dictionary may also be used at written examiniations. Support materials permitted at written examiniations are explained under exam information in our web-based Student handbook. Please note use of calculator and dictionary. http://www.bi.edu/studenthandbook/examaids

    Re-sit examination
    A re-sit is held in connection with the next scheduled examination in the course. Students who are retaking examination must take the course all over again including all parts of the evaluation.

    Additional information

    Semester

    Oversettelser