3403715: Empirical finance

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Semester:WS 12/13
Scheduled in semester:1
Semester Hours per Week / Contact Hours:27.0 L / 20.5 h
Self-directed study time:69.5 h

Module coordination/Lecturers


Master's degree programme in Banking and Financial Management (01.10.2008)


Foundations of Modern Standard Capital Market Theory

  • Capital Asset Pricing Model
  • Information Efficiency Hypothesis

Market Anomalies
  • Typical Market Anomalies
  • Speculative Bubbles

Information Processing in the Laboratory
  • Single-Stage Trading Procedure in the Case of Uncertain Information
  • Multi-Stage Trading Procedure and Portfolio Development

Information Processing in Real Capital Markets

Statistical Characteristics of Stock and Index Yields
  • Distribution Assumptions of Single Transaction-Based ROI Analysis
  • Concept of Stable Pareto Distribution

Risk Factors in Stock Yields

Stochastic Volatility
  • The ARCH Model

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

Learning Outcomes

  • Showing the meaning of the CAPM and capital market efficiency for capital market theory
  • Listing and diagnosing market anomalies
  • Identifying market anomalies by means of empirical data
  • Understanding the approach to information processing in the laboratory
  • Explaining information processing in real capital markets
  • Comparing statistical characteristics of stock and index yields
  • Identifying and scrutinising risk factors in stock yields
  • Explaining the methodology of event studies


Lectures Method

Interactive lecture with exercises


Required reading:

  • Black, F./Jensen, M./Scholes, M. (1972). The capital asset pricing model: some empirircal tests. In Jensen, M. (ed.) (1972). Studies in the Theory of Capital Markets. New York: Praeger Publishers, pp. 79-121.
  • Fama, E. F. et al. (1969). The adjustment of stock prices to new information. International Economic Review 10, pp. 1-21.
  • Fama, E.F. /MacBeth, J.D. (1973). Risk, return and equilibrium: empirical tests. Journal of Political Economy, Vol 81, pp. 607-663.
  • Fama, E.F. /French, K.R. (1992). The cross-section of expected stock returns. The Journal of Finance, Vol 47, pp. 427-465.
  • MacKinley, A.C. (1997). Event studies in economics and finance. Journal of Economic Literature, Vol. 35, pp. 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, pp. 36-66.

Recommended reading:
  • Benninga, S. (2008). Financial Modeling (Third edition). Cambridge, MA: MIT Press


Lecture slides, exercises, sample questions will be available on the moodle

Exam Modalities

  • Term paper (33.3%)


04.10.201209:00 - 16:30H4
05.10.201209:00 - 16:30H4
08.11.201210:30 - 18:00H4