Economics 512:
Financial
Econometrics

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Syllabus
Spring 2010
Last updated:
June 7, 2010
Note: "APDVP" denotes Asset Price
Dynamics, Volatility, and Prediction;
"FMUND" denotes Financial Modeling Under NonGaussian
Distributions , "MFTS" denotes "Modeling Financial Time Series with SPLUS, Second
Edition"; "Tsay" denotes Analysis of Financial Time Series, 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.
 *FMUND, Chapters 13.
 *APDVP, Chapters 27.


Class slides for return
definitions and distribution properties of returns
(updated 3/29/2010). Powerpoint slides
for distribution properties of returns
(updated 3/29/2010).

Review slides: Time Series
Concepts Not covered in class. Slides follow MFTS, Chapter 3.
(updated 3/30/2009). Powerpoint slides
for Time Series Concepts. (updated 3/30/2009).

Class slides for market
efficiency and return predictability
(updated 5/3/2010). Powerpoint
slides for return predictability (updated 5/3/2010)
 Cochrane, Asset Pricing, chapter 20
 Lo, A., and A.C. MacKinlay (1988). "Stock
Market Prices Do Not Follow Random Walks: Evidence from a Simple
Specification Test," Review of Financial Studies, 4166.
 Fama, E. and K. French (1988). "Permanent and temporary
components of stock prices," Journal of Political Economy, 96,
246273. Available in JSTOR.
 Nelson, C.R., and M. Kim (1993).
"Predictable stock returns: The role of small sample bias," Journal of
Finance, 48, 641661
 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), 14551508.
 Cochrane, J. (2008). "The Dog That Did Not Bark:
A Defense of Return Predictability," Review of Financial Studies, 21(4),
15331575.

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.
 *FMUND, Chapters 46, 8.


Class slides for univariate GARCH lectures
(updated 5/3/2010). Powerpoint
slides for univariate GARCH lectures (updated 5/3/2010).
 Class slides for
risk management concepts (updated 5/3/2010).
Powerpoint slides for
evaluating GARCH models using VaR (updated 5/3/2010).

Class slides for
multivariate GARCH lectures (updated 5/3/2010).
Powerpoint slides for
multivariate GARCH lectures (updated 5/3/2010)
 Class
slides for stochastic volatility models (updated 5/3/2010).

Class slides for
estimation of stochastic volatility models (updated 5/3/2010).
Powerpoint slides
for stochastic volatility lectures (updated 5/3/2010)
 Terasvirta, T. (2008). "An Introduction to Univariate
GARCH Models,"
Handbook of Financial Time Series.
 Lindner, A.M. (2008). Stationarity, Mixing,
Distributional Properties and Moments of GARCH(p,q) Processes.
Handbook of Financial Time Series.
 Francq, C., and Zakoian, J.M. (2008). "A Tour in the
Asymptotic Theory of GARCH Estimation,"
Handbook of Financial Time Series.
 Zivot, E. (2008). "Practical
Issues in the Analysis of Univariate GARCH Models,"
Handbook of Financial Time Series. Splus script for examples in paper.
 Diebold, F.X. and J. Lopez (1995). "Modeling
Volatility Dynamics," NBER Technical Working Paper No. 173.
 Engle, R.F. (2001). "GARCH 101: The Use of ARCH/GARCH Model in
Applied Economics," Journal of Economic Perspectives,
15(4), 157168.
 Engle, R.F. (2001). "Dynamic
Conditional Correlation: A Simple Class of Multivariate Generalized
Autoregressive Conditinoal Heteroskedasticity Models," Journal
of Business and Economic Statistics, 20, 339350.
 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. BarndorffNielsen (eds), Time Series
Models in Econometrics, Finance and Other Fields, London: Chapman
& Hall.
 Silvennoinen, A., and Terasvirta, T. (2008).
"Multivariate GARCH Models,"
Handbook of Financial Time Series.
 Shephard, N., and Andersen, T.G. (2008). "Stochastic
Volatility: Origins and Overview,"
Handbook of Financial Time Series.
 Jungbacker, B., and Koopman, S.J. (2008). "Parameter
Estimation and Practical Aspects of Modeling Stochastic Volatility,"
Handbook of Financial Time Series.
 Harvey, A.C., Ruiz, E., and Shephard, N. (1994).
"Multivariate Stochastic Variance Models," Review of Economic
Studies 61, 24764.
 Chib, S., Omori, Y., and Asai, M. (2008).
"Multivariate Stochastic Volatility," Handbook of Financial Time Series.
 Yu, J. (2005). "On Leverage in a Stochastic
Volatility Model," Journal of Econometrics 127, 16578.
 Kuester, K., Mittnick, S., and Paollela, M.S. (2006).
"ValueatRisk Prediction: A Comparison of Alternative Strategies,"
Journal of Financial Econometrics, 4(1), 5389.

Extreme Value Theory
and Copulas 
Textbook Readings 
Additional Readings 
 MFTS, Chapters 5 and 19
 Tsay, Chapter 7
 *FMUND, Chapters 6 and 7.


Continuous
Time Models 
Textbook
Readings 
Additional
Readings 
 MFTS, Chapters 20, 22 and
23.
 Tsay, Chapter 6.
 *APDVP, Chapters 13 and 14.
 FMUND, Chapters 1317.

 Class slides for continuous time models lectures (updated
5/19/2010).

Ultra
High Frequency Time Series 
Textbook
Readings 
Additional
Readings 
 MFTS, Chapter 9.
 Tsay, Chapter 5.
 *APDVP, Chapter 12


Class slides for
introduction to high frequency data (updated 5/17/2010) .
Powerpoint examples
(updated 5/17/2010).

Class slides for introduction
to realized variance (updated 5/24/2010).
Powerpoint examples
(updated 5/24/2010)

Class slides on estimating
realized variance and covariance (updated 6/4/2010).
Powerpoint examples
(updated 6/4/2010)

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)
lecture 2 (survey of realized
variance)

Andersen, T., and Benzoni, L. (2008). "Realized Volatility," Handbook of Financial Time Series.

Andersen, T., T. Bollerslev, F.X. Diebold, H. Ebens (2001). "The Distribution
of Realized Stock Return Volatility," Journal of Financial Economics, 61, 4376.

Andersen, T., T. Bollerslev, F.X. Diebold, P. Labys (2001). The Distribution
of Realized Exchange Rate Volatility, Journal of the American Statistical Association
96, 4255.

Andersen, T., T. Bollerslev, F.X. Diebold, P. Labys (2003). �Modeling and
Forecasting Realized Volatility,� Econometrica, 71(2), 579626.

Andersen, T., T. Bollerslev, F.X. Diebold, and C. Vega (2004). �RealTime
Price Discovery in Stock, Bond and Foreign Exchange Markets,� unpublished
manuscript, Northwestern University, Duke University, University of Pennsylvania,
and University of Rochester.

BarndorffNielsen, O.E., and N. Shephard (2002a). "Estimating Quadratic
Variation Using Realized Variance," Journal of Applied Econometrics, 17, 457
477.

BarndorffNielsen, 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, 253280.

Hansen, P.R.
and A Lunde (2006). Realized Variance and Market Microstructure
Noise (with discussion). Journal of Business and Economic
Statistics, 24, 127161.

AitSahalia, Y., and Mykland, P.A. (2008). "Estimating
Volatility in the Presence of Market Microstructure Noise: A Review of
the Theory and Practical Considerations."
