Financial Econometrics

Recommended Prerequisites

Intermediate Econometrics; Financial Economics and Risk.

Teaching Methods

To acquire specific competencies (collect and treat financial data, apply adequate econometric methods, use software): classes with both a lecture and a tutorial component; solving exercises in class and at home; preparation of a written work. To acquire generic competencies (for example, writing and presenting reports, planning the execution of tasks, working in a team) there is a periodic evaluation regime. This regime includes, besides the test (for which students should prepare by working on the exercises given, both during the classes and at home), writing and presenting an empirical projets.

Learning Outcomes

This curricular unit aims to complement the knowledge acquired in Intermediate Econometrics (in particular relating to ARIMA, VAR and GARCH models, unit roots and cointegration) by introducing students to a set of other relevant topics in the context of financial econometrics, namely in the light of the models studied in Financial and Risk Economics. Familiarity with these additional topics may be especially useful for students when preparing their Work Project. The use of software during classes and the writing of an empirical project will be important instruments to reach that objective.
The student is expected to be able to:
1) Suggest and apply adequate transformations to the data;
2) Use the data to compute return and volatility measures, and other relevant statistics;
3) Suggest and apply suitable econometric methods given the purposes of the analysis

Work Placement(s)

No

Syllabus

1. Financial data: transformations and computation of returns, volatility and other statistics.
2. Long memory.
3. Event study analysis.
4. Density estimation.
5. Volatility models: stochastic volatility and variants of the GARCH model.
6. Multivariate volatility models.
7. Extreme values, copulas and VaR.
8. Models with regime change: thresholds and Markov-switching.
9. Factor analysis and principal components.

Head Lecturer(s)

Rui Armando Pardal Silva Pascoal

Assessment Methods

Assessment
Presentations : 20.0%
Mini Tests: 40.0%
Project: 40.0%

Bibliography

Brooks, C. (2019). Introductory Econometrics for Finance, 4th ed. Cambridge University Press
Campbell, J.Y.; Lo, A.W.; MacKinlay, A.C. (1997). The Econometrics of Financial Markets. Princeton University Press.
Fabozzi, F.J.; Focardi, S.M.; Rachev, S.T.; Arshanapalli, B.G.; Hoechstoetter, M. (2014). The Basics of Financial Econometrics. Wiley.
Guidolin, M.; Pedio, M. (2018). Essentials of Time Series for Financial Applications. Academic Press.
Laopodis, N.T. (2021). Financial Economics and Econometrics. Routledge.
Linton, O. (2019). Financial Econometrics: Models and Methods. Cambridge University Press.
Tsay, R.S. (2010). Analysis of Financial Time Series, 3rd ed. Wiley.
Tsay, R.S. (2013). An Introduction to Analysis of Financial Data with R. Wiley,
Tsay, R.S. (2014). Multivariate Time Series Analysis with R and Financial Applications. Wiley.