3603715: Empirical finance

Description

Foundations of Modern Standard Capital Market Theory

• Capital Asset Pricing Model
• Information Efficiency Hypothesis

• Typical Market Anomalies
• Speculative Bubbles

• Introduction and Background
• Event Studies in the Short Term
• Event-Studies in the Long Term

• Time-series tests
• Cross-sectional tests

Learning Outcomes

• Students understand the concept of capital market efficiency and its implications for capital market theory
• Students are able to list and identify market anomalies by means of empirical data
• Students understand crucial steps in event-study methodology and possible fields of its application
• Students are able to apply event-studies for own empirical investigations
• Students can distinguish between time-series and cross-sectional tests of the CAPM
• Students apply empirical asset pricing tests to time-series, cross-sections and panel data
• Students understand the basic concepts and tools of the statistical software R
• Students are able to implement and solve problems in Empirical Finance using R

Lectures Method

Interactive lecture with exercises

Literature

Required reading:

• Fama E. (1970): `Efficient Capital Markets: A Review of Theory and Empirical Work', Journal of Finance, Volume: 25, Issue: 2, p. 383-417.
• Fama E. (1998): `Market efficiency, long-term returns, and behavioral finance', Journal of Financial Economics, Volume 49, Issue: 3, p.283-306.
• Malkiel B. (2003): `The Efficient Market Hypothesis and Its Critics', Journal of Economic Perspectives, Volume: 17, Issue: 1, p. 59-82.
• Fama, E. et al (1969), `The adjustment of stock prices to new information', International Economic Review, 10, p. 1-21.
• MacKinley, A.C. (1997), `Event studies in economics and finance', Journal of Economic Literature, Vol. 35, p. 13-39.
• Peterson, P.P. (1989), `Event studies: A review of issues and methodology, prices to new information', Quarterly Journal of Business and Economics, Vol 28, p. 36-66.
• Fama, E. and French, K. (1992), `The Cross-Section of Expected Stock Returns', Journal of Finance.
• Fama, E. & French k. (1993), `Common risk factors in the returns on stocks and bonds', Journal of Financial Economics, Vol 33, p. 3-56.
• Fama, E. and French, K. (2004), `The Capital Asset Pricing Model: Theory and Evidence', Journal of Economic Perspectives.
• Carhart, M. (1997), `On the persistence in mutual fund performance', Journal of Finance, Vol 51, p. 57-82.
• Black, F. et al (1972), `The capital asset pricing model: some empirical tests' in Jensen, M. (ed.) (1972). Studies in the Theory of Capital Markets. New York: Praeger Publishers.
• Jensen, M.C. (1968): `The performance of mutual funds in the period 1945-1964', Journal of Finance.
• Fama, E. and MacBeth, J. (1973): `Risk, Return, and Equilibrium: Empirical Tests', Journal of Political Economy.
• Litzenberger, R. and Ramaswamy, K. (1979):`The effect of personal taxes and dividends on capital asset prices: Theory and empirical evidence', Journal of Financial Economics.
• Venables, V.N. (2013). An introduction to R. Available at: http://www.cran.r-project.org/doc/manuals/R-intro.pdf

• Sollis, R. (2012). Empirical Finance for finance and banking. John Wiley & Sons.
• Campbell, J. et al (1997). The Econometrics of Financial Markets. Princeton University Press.
• Cochrane, J. (2005). Asset Pricing. rev. ed., Princeton University Press.
• Gruber, E. et al (2006). Modern Portfolio Theory and Investment Analysis. 7th Edition, Wiley.
• Benninga, S. (2008). Financial Modeling (Third edition). Cambridge, MA: MIT Press.
• Studenmund A.H. (2010). Using Econometrics: A Practical Guide: International Edition, Pearson, Addison Wesley.
• Veerbek, M. (2008). A Guide to Modern Econometrics. New York: John Wiley.
• Eddelbuettel, D. (2013). Empirical Finance - CRAN Task View. Available at: http://cran.r-project.org/web/views/Finance.html

Materials

Lecture slides, exercises, sample questions will be available on Moodle