Special Topics in Finance: Empirical Methods in Finance (FINC-530-0)
This is an introductory course on Empirical Asset Pricing with a focus on topics of current research interest and dynamic models in continuous-time. We will examine empirical evidence of existing theory and provide a roadmap of ideas for future theoretical inquiry. Since intriguing empirical work is always guided by theory, we will cover the necessary asset pricing theory along the way.
The course has a broad coverage and a long reading list of papers. The emphasis will be on studying the current literature. Necessary econometric methods, such as, Fama-MacBeth procedure, GRS test, GMM, time-series processes, methods for continuous-time processes, such as, Itô calculus (including jumps), martingales and changes-of-measure, and techniques of Monte Carlo simulation will be developed within the course. Topics include (but not limited to): (1) linear unconditional and conditional beta pricing models (including empirical factors, such as, Fama-French model, momentum factor, models of liquidity and illiquidity risk premia, etc. and rational vs behavioral debate on robust empirical anomalies, such as, the disposition effect), (2) return predictability, (3) consumption based models of stochastic discount factor, (4) stochastic nature of volatility and existence of variance risk premium, and (5) models for term-structure of riskfree rates and factors affecting bond risk premia. Time permit, we will also discuss current state of research on long-standing empirical puzzles confronting canonical theory, such as, the equity premium puzzle.
This course is intended for first or second year PhD students in finance and economics who have successfully completed at least one quarter of econometrics and have general knowledge in basic financial economics. Expertise in running regression and doing statistical analysis in MATLAB (or in another platform) is a plus (tutorial sessions on MATLAB will be held). Review sessions will meet on Tuesdays 3:00PM ¿ 5:00PM at Jacobs 4214 starting from the second week. Attendance in lectures and reviews are required. Course grade will be based on weekly assignments, writing referee report(s), and class presentation of a research paper.
Auditors (definition: any un-registered attendance, inside or outside of Kellogg) are not allowed in this course. Well prepared students may request waiver from the prerequisite courses by contacting the instructor via e-mail.
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