Econometric Analysis of Financial Data (Financial Econometrics)

 

 

Preliminary Materials	Review of Probability (Lecture Notes from E. Zivot http://faculty.washington.edu/ezivot/econ483/probrev.pdf) Review of Statistics Linear Algebra and Matrix Methods in Econometrics . Syllabus for this course (pdf format) Information on how to install R and Ox (pdf format) R-Manual (ABC) (pdf format, 109 pages) RMetrics (simple descriptions of functions in R for financial engineering and computational finance) (pdf format, 4 pages) tseries (Detailed descriptions of functions in R for analysis of financial time series data) (pdf format, 54 pages) An Important Link A list of packages useful for Empirical Finance. Some simple examples of using R (pdf format) [This is a lab assignment. Please download this file and download R and install it to your computer and then follow the commands in this file to learn how to use R] THE LECTURE NOTES Reading Materials I Lecture Notes on "Advanced Topics in Analysis of Economic and Financial Data Using R and SAS" Reading Materials II (Lecture Materials for Model Selection and Regression with Correleted Errors) Reading Materials III (Lecture Materials for HAC) Reading Materials IV (Lecture Materials for GMM from Chapter 11 of Cochrane (2001)) Reading Materials V (Chapter 7 of Taylor (2005)) Reading Materials VI (the paper by Hansen (2001) on GMM). Reading Materials VII (the paper by Jagannathan, Skoulakis and Wang (2002) on GMM in finance). Reading Materials VIII Chapter 17 of Hamilton (1994).
Topic 1	A motivation example   Data  R-Code Basic Concepts Univariate Linear Models R-code for the programming in Chapter 2. R-code for the programming in Chapter 3. Other R-codes: 1-23.r. Other R-codes: 2-13.r. Other R-codes: 2-20.r. Other R-codes: 4-9.r. Other R-codes: 4-12.r. Cai, Z. and Y. Hong (2009). Some Recent Developments in Nonparametric Finance. Forthcoming in Advances in Econometrics Cai, Z. and Q. Li (2009). Some Recent Developments in Nonparametric Econometrics. Forthcoming in Advances in Econometrics Cai, Z., X. Chen, Y. Fan and X. Wang (2009). Selection of Copulas in Risk Management. Working Paper
Topic 2	Predictability of Asset Returns Fama, F.F. (1991). Efficient Capital Markets: II. The Journal of Finance 46(5), p.1575 - 1617 Kuan, C.-M. and W.-M. Lee (2004). A new test of the martingale difference hypothesis. Studies in Nonlinear Dynamics & Econometrics 8, Issue 4, Article 1. Granger, C.W.J. (2005). The past and future of empirical finance: some personal comments. Journal of Econometrics, 129, p.35-40. Campbell, J. and M. Yogo (2006). Efficient tests of stock return predictability. Journal of Financial Economics, 81, p.27-60. Amihud, Y. and C. Hurvich (2004). Predictive regressions: A reduced-bias estimation method. Journal of Financial and Quantitative Analysis, 39, p.813-841. Paye, B.S. and A. Timmermann (2006). Instability of return prediction models. Journal of Empirical Finance, 13, p. 274-315. R-code for the programming in Chapter 4. Download the data file SP-A.txt
Topic 3	Market (Single Index) Model Akdeniz, L., A. Altay-Salih and M. Caner (2003). Time-varying betas help in asset pricing: The threshold CAPM. Studies in Nonlinear Dynamics and Econometrics, No.4, Article 1 . Cai, Z. (2007). Trending time varying coefficient time series models with serially correlated errors Journal of Econometrics 137, 163-188 Cui, H., X. He and L. Zhu (2002). On regression estimators with de-noised variables. Statistica Sinica, 12, 1191-1205 You, J. and J. Jiang (2005). Inferences for varying-coefficient partially linear models with serially correlated errors. In Advances in Statistical Modeling and Inference: Essays in Honor of Kjell A. Doksum, Ed. Vijay Nair. Series in Biostatistics, 3, 175-195. The Event Study Analysis Bernanke, B.S. and K.N. Kuttner (2005). What explains the stock market's reaction to Federal Reserve policy? Journal of Finance, 60, 1221-1257
Topic 4	An Introduction to Portfolio Theory Bevan, A. and K. Winkelmann, Goldman Sachs, June 1998, Using the Black-Litterman Global Asset Allocation Model: Three Years of Practical Experience. Campbell, J.Y. (2000). Asset Pricing at the Millennium. The Journal of Finance 55(4), p. 1515 - 1567 He, G. and R. Litterman, Goldman Sachs, December 1999, The Intuition Behind the Black-Litterman Model Portfolios Idzorek, T. M., A step-by-step guide to the Black-Litterman model Ledoit, O. and M. Wolf (2003). Improved estimation of the covariance matrix of stock returns with an application to portfolio selection. Journal of Empirical Finance 10(5), 603-621 Ledoit, O. and M. Wolf (2004). A well-conditioned estimator for large-dimensional covariance matrices. Journal of Multivariate Analysis 88, 365-411 Fan, J., Y. Fan and J. Lv (2006). High Dimensional Covariance Matrix Estimation Using a Factor Model. Working Paper Data library of Ken French Data File "34stocks.csv"
Topic 5	An Introduction to CAPM Fama, E.F. and K.R. French (1992). The cross-section of expected stock returns. The Journal of Finance 47(2), 427- 465 Kothari, S.P., J. Shanken and R.G. Sloan (1995). Another look at the cross-section of expected stock returns. The Journal of Finance 50(1), 185 - 224 Liew, J. and M. Vassalou (2000). Can book-to-market, size and momentum be risk factors that predict economic growth? Journal of Financial Economics 57, 221-245 Cai, Z. and C.M. Kuan (2005). Time-varying betas models: A nonparametric analysis. Working Paper (from Dr. Cai) Cai, Z. (2007). Trending time varying coefficient time series models with serially correlated errors Journal of Econometrics 137, 163-188
Topic 6	Multi-factor Pricing Models Fama, E.F. and K.R. French (1993). Common risk factors in the returns on stocks and bonds. The Journal of Financial Economics 33, 3- 56 Cochrane, J.H. (1999). New facts in finance, NBER Working Paper 169 (from NBER site) Stock, J.H. and M.W. Watson (2002). Macroeconomic forecasting using diffusion indexes. Journal of Business and Economic Statistics 20, 147 - 162 Data File "ch9-1.txt" Data File "ch9-2.txt"
Topic 7	Term Structure Models Backus, D., Foresi, S., and C. Telmer (2000). Discrete-time models of bond pricing. NBER Working paper 6736. In Advanced Fix Income Valuation Tools (N. Jegadeesh and B. Tuckman, eds.) . Chan, K., G. Karolyi, F. Longstaff and A. Sanders (1992). An empirical comparison of alternative models of the short-term rate. Journal of Finance 47, 1209 - 1227. Cai, Z. and Y. Hong (2003) Nonparametric methods in continuous-time finance: A selective review. In Recent Advances and Trends in Nonparametric Statistics (M.G. Akritas and D.M. Politis, eds.), 283-302 Download from here .
Topic 8	ARCH/GARCH models Stochastic Volatility Models (State Space Models and the Kalman Filter) Application to VaR Maximum Likelihood Estimation Harvey, A., E. Ruiz and N. Shephard (1994). Multivariate stochastic variance models. Review of Economic Studies 61, 247-264 Andersen, T.G., T. Bollerslev, P.F. Christoffersen and F. X. Diebold (2005). Volatility and correlation forecasting . Handbook of Economic Forecasting. Engle, R. (2001). GARCH101: the use of ARCH/GARCH models in applied Econometrics. Journal of Economic Perspectives 15(4), 157-168 Engle, R. and A.J. Patton (2001). What good is a volatility model. Quantitative Finance 1, 237 - 245. Taylor, J.W. (2004). Volatility forecasting with smooth transition exponential smoothing. International Journal of Forecasting 20, 273-286.
Topic 9	Inferences from Option Prices
Topic 10	Fixed-Income Securities
	Campbell, J.Y. and R.J. Shiller (1991). Yield spreads and interest rate movements: a bird's eye view. Review of Economic Studies 58, 495 - 514. Campbell, J.Y. (1995). Some lessons from they yield curve. Journal of Economic Perspectives 9(3), 129-152 Cochrane, J.H. (1999). New facts in finance, NBER Working Paper 7169 (from NBER site) Cochrane, J.H. and M. Piazzesi (2002). Bond risk premia. NBER Working Paper 9178. Fama, E.F. and R.R. Bliss (1987). The information in long-maturity forward rates. American Economic Review 77, 680-92
Topic 11	Style Analysis (Sharpe 1992) The structure of multi-factor equity risk models Portfolio performance evaluation MacQueen, J. (2003). The structure of multifactor equity risk models. Journal of Asset management 3(4), 313 - 322 Cesar, R. and F. Panetta (2002). The performance of Italian equity funds. Journal of Banking and Finance 26, 99 - 126 ITG Equity Risk models