Financial Econometrics

Note that the notes below are "work in progress", they will be continously updated until the class time, so don't start wasting paper on printing them until the time for the class actually arrives.

Part 1: Toolchest

• Introductory lecture
• Data Sources
• Computer Tools
• Linear Algebra
• Computer Tools: Matrix Handler (matlab)
• Computer Tools: Julia
• Computer Tools: Gnuplot

Part 2: Basic Econometrics

• OLS - least squares estimation
• Computer Tools: R (statistics)
• Plotting - graphical illustrations
• Case: Designated Market Makers Comparing distributions by plotting and testing.
• Probability background Lecture (mostly background)
• OLS distributional results
• Inference in regressions
• Equity Portfolio Performance
• Dummies in regressions
• Case: Seasonality at the OSE
• Case: Weather and the OSE Illustrating nontrivial building of time series, strange libraries, etc...
• Maximum Likelihood
• Choice theoretic modelling
• Case: Designated Market Makers Doing a binary choice regression.

Part 3 Crossectional Asset Pricing

• classical OLS violations in regressions: Correcting for heteroskedasticity, autocorrelation etc.
• Crossectional Asset Pricing - a survey and historical overview
• CAPM - testing for a single pricing factor equal to the market portfolio. The BJS and FM approaches.
  • Black Jensen Scholes (1972) type of modelling
  • Fama MacBeth (1973) type of modelling
• Multivariate tests under Normality Gibbons Ross Shanken (1989)
• GMM - in general
• GMM estimation of CAPM
• APT - a sidetrack - the search for the number of pricing factors
• Fama French - the expansion in the number of explanatory factors
• Factor Premia - GMM estimation of

Event Studies

• Event studies

Time Series

• Time Series What is special about time series data?
• Time Series: Vector Autoregressions
• Cointegration, Unit Roots etc
• Modelling time varying variance (ARCH/GARCH)
• Time Series: Forecasting Example:
• Forecasting the Real Economy with Financial Variables
• Case: Naes Skjeltorp Ødegaard (2011) Stock Market Liquidity and the Business Cycle

SDF based asset pricing

• Stochastic Discount Factor Approach to asset pricing
• Hansen Singleton GMM application, representative agent pricing
• Case: Using SDF to measure Equity Portfolio Performance
• Second moment bounds

Topics

• On the (im)possibility of accuracy when estimating Expected returns (The Merton (1980) result)
• Realized volatility
• Market efficiency
• Case: Equity Premium Forecasting
• Factor Mimicking Portfolios
• Using R's Panel Data routines - asset pricing illustration
• Solving endogeneity problems Diff in Diff
• Case: Throttling hyperactive robots (illustrating diff in diff in a liquidity setting).
• Data Snooping
• Bayesian Analysis
• #fincap

Data etc

Data

• Bitcoin
• Computer Tool: Spreadsheets
• Covid data
• Exchange Rates - Data
• Folketrygdfondet
• Ken French US data.
• Ken French Global data
• NBIM (Oil Fund)
• NIBOR
• Norwegian Financial Data
• Norwegian Government Debt
• Oil Prices (International)
• Prediction markets
• UK football data

• Useful formulas

• On Writing