Economics 512:  Financial Econometrics

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Syllabus

Spring 2009

Last updated: May 6, 2009

Note: "APDVP" denotes Asset Price Dynamics, Volatility, and Prediction;  "CLM" denotes Campbell, Lo and MacKinlay, and MFTS denotes "Modeling Financial Time Series with S-PLUS, Second Edition".  * denotes the most relevant reading.

Distribution and dynamic behavior of asset returns

Textbook Readings

Additional Readings

• MFTS, Chapters 2, 3, and 4.
• Tsay, Chapters 1 and 2.
• CLM, Chapters 1, 2, and 7
• APDVP, Chapters 2-7.

• Class slides for lecture 1 (updated 3/30/2009). Powerpoint slides for lecture 1 (updated 3/30/2009).
• Class slides for lecture 2 (updated 3/30/2009). Powerpoint slides for lecture 2 (updated 3/30/2009). Splus script file for class examples.
• Class slides for lecture 3 (updated 4/6/2009). Powerpoint slides for lecture 3 (updated 4/6/2009)
• Cochrane, Asset Pricing, chapter 20
• Fama, E. and K. French (1988). "Permanent and temporary components of stock prices," Journal of Political Economy, 96, 246-273. Available in JSTOR.
• Nelson, C.R., and M. Kim (1993). "Predictable stock returns: The role of small sample bias," Journal of Finance, 48, 641-661
• Stambaugh, R (1986). "Bias in regressions with lagged stochastic regressors," CRSP Working Paper 156, University of Chicago.
• Welch, I. and A. Goyal (2008). "A Comprehensive Look at The Empirical Performance of Equity Premium Prediction," Review of Financial Studies, 21(4), 1455-1508.
• Cochrane, J. (2008). "The Dog That Did Not Bark: A Defense of Return Predictability," Review of Financial Studies, 21(4), 1533-1575.

 Volatility Modeling

Textbook Readings

Additional Readings

• MFTS, Chapters 7, 8, 9, 13 and 14.
• Tsay, Chapters 3, 10 and 11.
• APDVP, Chapters 8 - 11, 15.

• Class slides for univariate GARCH lectures (updated 4/15/2009). Powerpoint slides for univariate GARCH lectures (updated 4/29/2008). Powerpoint slides for evaluation of GARCH models using VaR.
• Class slides for multivariate GARCH lectures (updated 5/8/2008). Powerpoint slides for multivariate GARCH lectures (updated 5/8/2008)
• Class slides for stochastic volatility models (updated 5/6/2009).
• Class slides for estimation of stochastic volatility models (updated 5/5/2009). Powerpoint slides for stochastic volatility lectures (updated 5/6/2009)
• Zivot, E. (2008). "Practical Issues in the Analysis of Univariate GARCH Models," forthcoming in the Handbook of Financial Time Series. Splus script for examples in paper.
  • practicalGarch.ssc
• Diebold, F.X. and J. Lopez (1995). "Modeling Volatility Dynamics," NBER Technical Working Paper No. 173.
• Engle, R.F. (2000). "What Good is a Volatility Model," unpublished manuscript, Stern School of Business, NYU.
• Engle, R.F. (2001). "GARCH 101: The Use of ARCH/GARCH Model in Applied Economics," Journal of Economic Perspectives, 15(4), 157-168.
• Granger, C. and S.-H. Poon (2001). "Forecasting Financial Market Volatility," unpublished manuscript, Strathclyde University.
• Shephard, N. (1996) “Statistical Aspects of ARCH and Stochastic Volatility”, in: D. R. Cox, D. V. Hinkley and O. E. Barndorff-Nielsen (eds), Time Series Models in Econometrics, Finance and Other Fields, London: Chapman & Hall.

Extreme Value Theory and Copulas

• MFTS, Chapters 5 and 19
• Tsay, Chapter 7

• Class slides for extreme value lectures (updated 5/6/2009). Powerpoint slides for extreme value lectures (updated 5/6/2009)

• McNeil, A. J., and R. Frey. (2000). ‘‘Estimation of Tail-related Risk Measures for Heteroscedastic Financial Time Series: An Extreme Value Approach.’’ Journal of Empirical Finance 7:271–300.

• Brooks, C., A. D. Clare, J. W. Dalle Molle, and G. Persand. (2005). ‘‘A Comparison of Extreme Value Theory Approaches for Determining Value at Risk.’’ Journal of Empirical Finance 12:339–352.

 Ultra High Frequency Time Series

Textbook Readings

Additional Readings

• MFTS, Chapter 9.
• Tsay, Chapter 5.
• APDVP, Chapter 12

• Short course on Analysis of High Frequency Financial Time Series presented at the 11th  Brazilian Time Series and Econometrics Meeting (ESTE), July 31 - August 3, 2005.

  lecture 1 (overview of high frequency data in finance)

  • notes

  • powerpoint slides

  lecture 2 (survey of realized variance)

  • notes

  • powerpoint slides (theory)

  • powerpoint slides (empirical results)

   

• Class slides (realized variance and microstructure noise). Powerpoint examples. 

• Andersen, T., T. Bollerslev, F.X. Diebold, H. Ebens (2001). “The Distribution
  of Realized Stock Return Volatility,” Journal of Financial Economics, 61, 43-76.

• Andersen, T., T. Bollerslev, F.X. Diebold, P. Labys (2001). The Distribution
  of Realized Exchange Rate Volatility, Journal of the American Statistical Association
  96, 42-55.

• Andersen, T., T. Bollerslev, F.X. Diebold, P. Labys (2003). “Modeling and
  Forecasting Realized Volatility,” Econometrica, 71(2), 579-626.

• Andersen, T., T. Bollerslev, F.X. Diebold, and C. Vega (2004). “Real-Time
  Price Discovery in Stock, Bond and Foreign Exchange Markets,” unpublished
  manuscript, Northwestern University, Duke University, University of Pennsylvania,
  and University of Rochester.

• Barndorff-Nielsen, O.E., and N. Shephard (2002a). “Estimating Quadratic
  Variation Using Realized Variance,” Journal of Applied Econometrics, 17, 457-
  477.

• Barndorff-Nielsen, O.E., and N. Shephard (2002b). “Econometric Analysis of
  Realized Volatility and Its Use in Estimating Stochastic Volatility Models,”
  Journal of the Royal Statistical Society, Series B, 64, 253-280.

• Hansen, P.R. and A Lunde (2006). Realized Variance and Market Microstructure Noise (with discussion). Journal of Business and Economic Statistics, 24, 127-161.
• Yan, B. and Zivot, E. (2008). "A Structural Analysis of Price Discovery Measures". Working paper, Department of Economics, University of Washington.
• Yan, B. and Zivot, E. (2008). "The Dynamics of Price Discovery". Working paper, Department of Economics, University of Washington.

 Continuous Time Models

Textbook Readings

Additional Readings

• MFTS, Chapters  20, 22 and 23.
• Tsay, Chapter 6.
• APDVP, Chapters 13 and 14.