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Econometrics For Finance Course Outline

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30 views

Econometrics For Finance Course Outline

Uploaded by

demilie
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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College of Business and Economics

Department of Accounting and Finance


____________________________________

Econometrics for Finance (AcFn3112)


Course Description:
 Econometrics is based upon the development of statistical methods for estimating
economic relationships, testing economic theories, and evaluating and implementing
government and business policy.
 The most common application of econometrics for finance is modeling and forecasting
financial data such as asset prices, asset returns, interest rates, financial ratios, defaults
and recovery rates on debt obligations, and risk exposure, forecasting future values of
financial variables and for financial decision-making.
 Econometrics represents the quantitative, mathematical laws of economics.
 Financial econometrics is the econometrics of financial markets.
 Financial econometrics is applied to either time series data, such as the returns of a
stock, or cross-sectional data such as the market capitalization of all stocks in a given
universe at a given moment.
 Financial econometrics applied to larger databases making statistical analysis
more accurate as well as providing the opportunity to investigate a wider range
of issues regarding financial markets and investment strategies.

Course Objectives:

 The main objective of this course is to enable students have a good background
knowledge on cross-sectional econometric models. More specifically, after the
completion of the course, students are expected to:
 Understand the econometric models ( linear vs non-linear, discrete choice
models)
 Type of variables (dependent vs independent(explanatory), continuous vs
categorical)
 Understand type of data
 Do simple and multiple regression with economic data ( in business area)

By Asimamaw B. (MSc.) Contact Address: [email protected]


 Interpret regression results (like coefficients and R2) and test hypotheses (both
manually and using statistical packages); and
 Detect (in) existence of problems of multicollinearity, heteroscedasticity and
autocorrelation as well as suggest how to rectify such problems (both manually
and using statistical packages).

Course Contents:
Chapter One: The subject matter of Econometrics
1.1 The econometric approach
1.2 Mathematical models vs econometric model
1.3 Different types of data for econometric analysis
Chapter 2: Simple Linear Regression (LS)
2.1 Concept of regression function
2.2 Method of Moments & Method of least squares
2.3 Residuals and goodness of fit
2.4 Properties of LS estimates and Gauss-Marko theorem
2.5 Confidence Intervals and Hypothesis Testing
2.6 Predictions with Simple Linear Regression Model
Chapter 3: Multiple Linear Regression Analysis: Estimation and Hypothesis Testing
3.1 Introduction
3.2 The Method of Least Squares
3.3 Partial Correlation Coefficients and their interpretation
3.4 Coefficients of Multiple Determination
3.5 Properties of least squares and Gauss-Marko theorem
3.6 Introduction to Multivariate Normal Distribution
3.7 Classical Normal Linear Regression
3.8 Hypothesis Testing and Interval Estimation
3.9 Point and Interval Forecasting Using Multiple Linear Regression
Chapter 4: Violations of the Assumptions of Classical Model
4.1. Multicollinearity
4.2. Heteroscedasticity
4.3. Autocorrelation
4.4. Specification Errors: omission of variables
4.5. Tests of parameters stability
Chapter 5: Multiple Regression Analysis with Qualitative Information: Binary (or
Dummy Variables)
5.1. Describing Qualitative Information
5.2. Dummy as Independent Variables

By Asimamaw B. (MSc.) Contact Address: [email protected]


5.3. Dummy as Dependent Variable
5.3.1. The Linear Probability Model(LPM)
5.3.2. The Logit and Probit Models
5.3.3. Interpreting the Probit and Logit Model Estimates
Chapter 6: Basic Regression Analysis with Time Series Data: Basic Concepts
6.1 The nature of Time Series Data
6.2 Stationary and non-stationary stochastic Processes
6.3 Trend Stationary and Difference Stationary Stochastic Processes
6.4 Integrated Stochastic Process
6.5 Tests of Stationarity
6.6 Cointegration
Chapter 7: Introduction to simultaneous equation models (Optional)
7.1 The Nature of Simultaneous Equation Models
7.2 Simultaneity bias
7.3 Order and rank conditions of identification (without proof)
7.4 Recursive models
7.5 Indirect squares and 2SLS estimation of structural equations

Assessment Methodology

Assessment method Weight


Assignment (Indi/group) 20%
Mid 30%
Final Exam 50 %
Total 100% Course Policy
 Late coming is not allowed and no student is allowed to enter after class has started.
 Duplication of assignments is strictly forbidden; it entails serious penalty.
 Assignments are required to be submitted before or on the deadline.
 Cheating during exam sessions results in a minimum of “F “grade while cheating in
quizzes and tests is subjected to a zero mark. All cheating cases will be reported to the
department for further considerations.
 Students should switch off their cell phones while they are in class and must keep their
cell phones switched off during all kinds of exam sessions.
 Students must attend 80% of the class for the course. Failure to attend 80% of the class
will not allow the student to sit for the final exam.
Missing a test (quiz) without convincing evidences will earn the students a grade of zero
marks in that specific test (quiz

By Asimamaw B. (MSc.) Contact Address: [email protected]


References

 Frank J. Fabozzi (2014). The Basics of Financial Econometrics: Tools,


Concepts, and Asset Management Applications. John Wiley & Sons, Inc.,
Hoboken, New Jersey.
 Chris Brooks (2008). Introductory Econometrics for Finance (2nd Edition).
Cambridge University Press.
 Gujarati, D. N. and D. C. Proter (2009). Basic Econometrics,
5thedition,McGraw-Hill
 Wooldridge, J. (2013). IntroductoryEconometrics: A Modern Approach, 5thEd.
 James H. Stock & Mark W. Watson (2015). Introduction to Econometrics (Third
edition). Pearson Education, Inc.

By Asimamaw B. (MSc.) Contact Address: [email protected]

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