Financial Econometrics
School of Business Administration
HebrewUniversity of Jerusalem
Name: Doron E. Avramov, Ph.D, Professor of Financeפרופסור למימון; דורון אברמוב
Office: 5132 MountScopus, Jerusalem
Web:
Class Hours: Wednesday 8:30-11 AM
Office Hour: Wednesday 15:30-16:30
Room: חדר עסקאות – מנהל עסקים
Course Description:
The past few decades have been characterized by an extraordinary growth in the use of quantitative methods in financial markets in analyzing various asset classes; be it equities, fixed income instruments, commodities, orderivative securities.Financial market participants, both academics and practitioners, have been routinely using advanced econometric techniques in a host of applications including portfolio management, risk management, interest rate modeling and quotation, as well as regulatory purposes. This course attempts to provide a fairly deep glance into econometric methods used among sophisticated investment mangers, covering a host of topical issues. The course targets advanced master (financial economics) as well as PhD level students. For one, I will assume a prior knowledge of matrix algebra, distribution theory, Ordinary Least Squares, and Maximum Likelihood Estimation.The covered topics include
- Overview
- Matrix algebra
- Law of iterated expectations and variance decomposition
- Taylor approximation
- Distribution theory
- Hypothesis testing
- OLS
- MLE
- The Sharpe ratio measure and its distribution; the Delta method
- Testing asset pricing models including the CAPM, CCAPM, and multi factor models
- Time series analysis
- Cross section analysis
- The econometrics of the mean variance frontier
- Estimating expected returns
- Estimating the variance-covariance matrix
- Forming mean variance efficient portfolio and the Global Minimum Vol Portfolio
- The Black-Litterman approach
- Other Bayesian approaches
- Principal component analysis
- Downside risk measures including value at risk, shortfall probability, and drawdown
- Variance ratio tests
- Option pricing and testing the validity of the B&S formula
- Model verification based on failure rates
- Predicting asset returns using time series regressions
- The econometrics of back-testing
- Understanding time varying volatility models including ARCH, GARCH, EGARCH, and realized volatility
- The econometrics of the term structure of interest rates
Resources:
- Textbook: There are four recommended textbooks for this course (the first two are available in my web site):
1)Financial Econometrics Notes by Paul Söderlind1
2)Financial Econometrics Notes by Kevin Sheppard
3)The Econometrics of Financial Markets, by John Y. Campbell,Andrew W. Lo, and A. Craig MacKinlay, PrincetonUniversityPress, 1997
4)Asset Pricing, by John H. Cochrane, PrincetonUniversity Press,2005
- Instructor: I welcome students to see me during the office hour and class breaks to discuss any aspect of the course. I welcome your feedbacks regarding any aspect of the teaching process.
Assignments (40%): There will regular assignments in which you will be using real data to implement methods and run tests, as explained in class. The assignments could be made by groups with each group consisting of up to four students. Assignments' due dates will be announced in class.
Final Exam (60%): The exam will be based on the material in class, class handouts, assignments, and reading. The exam is closed books and closed notes. However, you will be allowed to bring in one piece of paper with handwritten notes (double-sided, A4 size). You will not be allowed to use any other notes. I will allow the use of non-programmable calculators during the exam. You will find in the end of this syllabus questions taken from past year exams. It would be beneficial to solve those questions as a means of preparation for the final.
Class Participation: It is mandatory to attend all sessions. If you miss a session for good reason, make sure you catch up on all missed material. In general, you are responsible for class lectures as well as any announcements, discussions, or remarks.
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