Scientific Disciplinary Sector (SSD)
SECS-P/05 - ECONOMETRICS
Primo semestre (lauree magistrali) dal Oct 3, 2022 al Dec 23, 2022.
The aim of this course is to introduce students to the econometric models for financial markets and their application to modelling and forecasting data from financial time series. The course discusses the empirical analysis of financial models (CAPM, Fama-French) and the empirical assessment of portfolio efficiency. It also pays special attention to modelling and forecasting of returns and volatility.
At the end of the course the student is expected to (a) have solid knowledge of the basic topics in financial econometrics; (b) understand and use concepts and expressions commonly used in the econometric analysis of financial markets; (c) perform empirical applications using financial data and econometric techniques; (d) interpret results from empirical applications developed by others.
Prerequisites and basic notions
Working knowledge of basic mathematics and statistics is recommended.
1b. Statistics and algebra recap
2. ORDINARY LEAST SQUARES (OLS) MODEL
2a. Univariate and multivariate regressions; Marginal effects and elasticities; R-squared statistic
2b. Hypothesis testing: t and F tests
3. PORTFOLIO ALLOCATION
3a. Mean-Variance criterion; Efficient frontier; Tangency portfolio
3b. Britten-Jones portfolio test
4. MARKET EQUILIBRIUM
4a. Capital Asset Pricing Model; Equilibrium returns
4b. CAPM empirical assessment and extensions (Fama-French and APT models)
5. MODEL SELECTION
5a. Fit of the model to the data; RESET test; White test
5b. Variable selection (Stepwise selection; Ridge and LASSO regression)
6. MODELS FOR FINANCIAL TIME SERIES
6a. AR, MA and ARMA models to estimate returns
6b. Model selection, trend, Dickey-Fuller test and forecast
6c. ARCH and GARCH models to estimate volatilities
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Frontal teaching. Lectures include real examples interactively developed using the data management free software R.
Learning assessment procedures
The exam is made of one written essay and one individual homework. No oral integration is planned.
The written essay lasts one hour and thirty minutes and covers the whole program of the course. Use of handheld calculators is allowed, but use of personal notes or other teaching material is not allowed.
The homework is developed individually, and can be of two types (Homework I or Homework II). Homework I aims to develop analytical skills through personal data analysis. Homework II aims to develop critical skills with respect to empirical applications. Each student can choose which type of homework to deliver, but must deliver one of them. Once the deadline for delivery of Homework I has expired, it is possible to deliver Homework II only. The homework has to be delivered before taking part in the written essay; its grade remains valid throughout the academic year.
The written essay evaluates general understanding of the main econometric topics and the ability to understand and interpret tables reporting econometric output. The homeworks ascertain the ability to develop empirical research through personal elaboration (Homework I) or to critically comment empirical research developed by others (Homework II).
Criteria for the composition of the final grade
The final grade is given by the average of the grades in the essay and the homework, with 80% and 20% weights respectively. In order to pass the exam, it is necessary to obtain a grade not below 16/30 in the written essay. Students can separately reject the essay grade and the homework grade. However, the homework grade can be rejected only once.