78178 - Introduction to the Econometrics of Asset Pricing

Learning outcomes

At the end of the course the student has acquired knowledge of the core financial econometric models and methods, such as GMM estimation and testing. In particular, he/she is able:

- to critically understand the applications of these models in the recent empirical economic literature

- to apply the models and perform his/her own analysis of financial datasets using the software STATA.

Course contents

1. The consumption-based model and the SDF
2. Alternative mean-variance frontier and beta representations
3. Regression-based tests of linear models
4. Maximum likelihood inference
5. GMM estimation and testing of SDF pricing models
6. Time series vs. cross-sectional approaches
7. Extensions

Readings/Bibliography

• John. H. Cochrane, "Asset Pricing", Princeton University Press, 2nd ed., 2005.
• John Y, Campbell, Andrew W. Lo and A. Craig McKinley, "The Econometrics of Financial Markets", Princeton University Press, 1997.
• Further material (including data and software) for this course will be made available from the personal webpage of the lecturer.

Teaching methods

For each topic we will first introduce the relevant theory, and then move as soon as possible to its empirical application. Special emphasis will be placed on the economic interpretation of the results.

Assessment methods

The final exam is written. It lasts one hour and it is composed of two distinct sections.
The first one is mainly theoretical, and it contains 5 multiple choice questions. The second one is mainly empirical, and it contains 11 questions whose answers shoud be computed using Stata and knowledge of the empirical analysis discussed during classes. Whatever the section, each correct answer yields two points; no penalty is applied to wrong answers. The final mark is the total number of point obtained in the two sections.
During the exam it is forbidden to consult notes, slides, books, pocket calculators and any other electronic devices. The purpose of the exam is to ascertain that students acquired the knowledge required to correctly specify, estimate and test the econometric models discussed during the lectures and possess the ability to properly interpret the results provided by these procedures.

Teaching tools

We will discuss several empirical analysis and replicate the results of a few papers using the econometric software Stata.

Office hours

See the website of Sergio Pastorello