4408084: Empirical and Experimental Methods in Finance

Description

This lecture is divided into empirical and experimental methods. The empirical methods will cover:

Foundations of Modern Standard Capital Market Theory

• Capital Asset Pricing Model
• Information Efficiency Hypothesis

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

• Time-series tests
• Cross-sectional tests

• Key concepts of experimental methods
• Introduction to the conceptual framework of experimental finance
• Key decision mindsets of market participants
• Introduction to trading anomalies
• Speculative Bubbles
• Trading behaviour of the 'over the counter' (OTC) market
• Alternative applications of experimental methods in finance

Learning Outcomes

Students...

• understand the concept of capital market efficiency and its implications for capital market theory
• are able to list and identify market anomalies by means of empirical data
• understand crucial steps in event-study methodology and possible fields of its application
• are able to apply event-studies for own empirical investigations
• can distinguish between time-series and cross-sectional tests of the CAPM
• apply empirical asset pricing tests to time-series, cross-sections and panel data
• are able to understand how buyers and sellers set a market price
• know the fundamental rules of experimental methods in finance
• can determine how information is reflected in the market price and evaluated
• participate in experiments and create their own experiment to understand the logical structure behind this approach.

Lectures Method

Interactive lecture with exercises

Literature

Required reading for Empirical Methods:

• Campbell, J. Y., Lo, A. W., & MacKinlay, A. C. (1997). The econometrics of financial markets Princeton: Princeton University Press.
• Cochrane, J. H. (2005). Asset pricing, Princeton: Princeton University Press.

• Current academic papers will be used in the course. They will be announced at the beginning of the term.