ICM204-Financial Econometrics

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites: ICM103 Quantitative Methods for Finance or REMF37 Quantitative Techniques
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2020/1

Email: m.p.clements@icmacentre.ac.uk

Type of module:

Summary module description:

Building on the material introduced in Quantitative Methods for Finance, this module covers a number of more advanced techniques that are relevant for financial applications, and in particular for modelling and forecasting financial time series. These include an introduction to maximum likelihood estimation and two-stage least squares, models of volatility, simulation techniques, and multivariate models. Case studies from the academic finance literature are employed to demonstrate potential uses of each approach. Extensive use is also made of financial econometrics software to demonstrate how the techniques are applied in practice.

Aims:

To provide students with a critical understanding of modern econometrics, with an emphasis on financial applications. To enable students to analyse data, estimate systems of equations, and test hypotheses, and to appreciate the challenges (and opportunities) of time-series data, and panels of dat

Intended learning outcomes:

By the end of the module, it is expected that the student will be able to

- Describe, estimate and evaluate a number of different approaches to modelling and forecasting financial data

- Determine the appropriate class of model to address a particular problem in empirical finance

- Compare and contrast a number of methods for modelling and forecasting the volatility of financial time series

- Comprehend and critically evaluate the use of econometrics in the published academic finance literature

Assessable learning outcomes:

• Describe, estimate and evaluate a number of different approaches to modelling and forecasting financial data


• Determine the appropriate class of model to address a particular problem in empirical finance

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Additional outcomes:

The module also aims to encourage the development of IT skills and in particular the manipulation of data using statistical software packages. Students will also improve their ability to translate abstract theoretical concepts into practical solutions to financial problems.

Outline content:

Topic 1 Univariate time-series modelling and forecasting



Topic 2 Simultaneous equations models

- Simultaneous equations bias

- Identification

- Estimation, triangular systems



Topic 3 Vector autoregressive modelsÌý

- Motivation, formulation, estimation

- Comparison with structural models

- Causality, impulse response functions, variance decompositions



Topic 4 Multivariate cointegration

- the Johansen approachÌý

- hypothesis testing using Johansen.



Topic 5 Volatility modelling and forecasting

- Maximum likelihood estimationÌý

- Volatility modelling using autoregressive conditionally heteroscedastic (ARCH) modelsÌý

- variants and extensions of the ARCH model



Topic 6 Panel data analysis



Topic 7 Simulations methods in econometrics and finance

- motivation

- pure simulation versus bootstrap

- variance reduction techniques

Brief description of teaching and learning methods:

Core lectures supported by lab based computer seminars and classroom based tutor led discussion

Summative assessment- Examinations:

One 3 hour exam

Summative assessment- Coursework and in-class tests:

One Group Project (5-6 students), to be submitted last week of Spring termÌý

Formative assessment methods:

Penalties for late submission:
Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx

Assessment requirements for a pass:
50% weighted average mark

Reassessment arrangements:
By written examination only, as part of the overall examination arrangements for the MSc programme.

Additional Costs (specified where applicable):
1) Required text books:
2) Specialist equipment or materials:
3) Specialist clothing, footwear or headgear:
4) Printing and binding:
5) Computers and devices with a particular specification:
6) Travel, accommodation and subsistence:

Last updated: 11 May 2020