This course constitutes an introduction to Financial Econometrics. Based on the main models of the financial theory, the course presents the classical tools, their empirical motivations, and the appropriate econometric methods for handling such models.
The course will be completed by TD's where the methods will be numerically implemented.
At the end of the course, students should be able to master the classical concepts of the portfolio theory as well as their econometric implementation.
- Empirical properties of financial returns: returns of financial assets; assumptions on the returns process. Discussion of the Gaussian assumption. Stable distributions.
- Efficient portfolios: efficient frontier; Sharpe performance; estimation of the efficient frontier; estimation and tests of the performance of portfolios.
- CAPM: regression of baseline returns on a portfolio's return; equilibrium model; regression on the market portfolio; security market line; testing the CAPM.
- Factor models: absence of arbitrage opportunity assumption; estimation in the case of observable factors; factors selection: principal component analysis and factor analysis; empirical application.
- Dynamic factor models: Dynamique betas. Cholesky decomposition of the conditional covariance matrix.
CAMPBELL J.Y., LO A.W. and MACKINLAY A.C. (1996) : The econometrics of financial markets, Princeton.
GOURIEROUX C., and J. JASIAK (2002) : Financial Econometrics: Problems, Models and Methods. Princeton.
LINTON, O. (2019): Financial Econometrics: Models and Methods. Cambridge.