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LEARNING OBJECTIVES:
After following this course, students should be able to
· evaluate and reflect upon empirical studies using financial markets data
· apply basic econometric methods in analyzing prices and returns from financial markets
· generalize the results from empirical analyses to financial market theories
COURSE DESCRIPTION:
Empirical finance uses statistical and econometric methods to analyze observed prices and returns in financial markets. This includes, among other things, the estimation of expected returns on stocks, bonds and foreign exchange, tests of return predictability, the modeling of risk and risk-premia, performance evaluation of mutual funds, the determination of stock prices based on economic fundamentals (earnings, dividends, interest rates, etc.), the reaction of investors to "news" (including dividends and earnings announcements), the relation between prices on different assets, including the term structure of interest rates (the relation between interest rates on bonds with different maturities) and international interest rate parities.
COURSE SUBJECT AREAS:
1. Basic Concepts, The Efficient Markets Hypothesis, Return Predictability
2. Asset Pricing Models and Tests
- Tests of CAPM, APT and the Fama & French 3-factor model
- Consumption-based Asset Pricing Model
- Equity Premium Puzzle
3. Applications of Asset Pricing Models and Valuation Models
- Performance evaluation
- Event studies
- Stock prices: present value models, variance bounds
4. Term Structure of Interest Rates, Foreign Exchange Market
- Expectations hypothesis and tests
- International Parity Conditions
- Exchange Rates and Fundamentals
5. Topics in Empirical Finance
-e.g. Anomalies and Behavioral Finance, bubbles
REQUIRED COURSES:
3620: Econometrics (5.semester). Students are supposed
to have some experience with at least one econometrics software program.
LECTURER: Andreas Schrimpf
TEACHING METHOD:
Lectures and exercises based on data from the financial markets.
LITERATURE:
Cuthbertson, K. & D. Nitzsche: "Quantitative Financial Economics: Stocks, Bonds & Foreign Exchange". 2.edition, 2004. John Wiley & Sons. Approx. 550 pages
Selected journal articles:
Carhart, M.M. (1997): On persistence in mutual fund performance. Journal of Finance 52, 57-82.
Fama, E.F. & K.R. French (1996): Multifactor explanations of asset pricing anomalies. Journal of Finance 51, 55-84.
Fama, E.F. & K.R. French (2004): The capital asset pricing model: Theory and evidence. Journal of Economic Perspectives 18, 25-46.
MacKinlay, A.C. (1997): Event studies in economics and finance. Journal of Economic Literature 35, 13-39.
More articles will be announced in the beginning and in the course of the class.
Approx. 200 pages
Lecture notes. Approx. 300 pages
Approx. 1050 pages in total
FORM OF ASSESSMENT: Written 4-hour exam.
EXAMINATION AIDS ALLOWED: None, calculator will be provided
