LahoreUniversityofManagementSciences

FINN32XFinancialEconometricsI
FallSemester2015

Instructor
RoomNo.
OfficeHours
Email
Telephone
Secretary/TA
TAOfficeHours
CourseURL(ifany)

SyedZahidAli
247EconomicsWingFirstFloor
TBA
szahid@lums.edu.pk
Ext.8074
KhalidPervaiz
TBA
Suraj.lums.edu.pk

COURSEBASICS
CreditHours
Lecture(s)
Recitation/Lab(perweek)
Tutorial(perweek)

4
2Lec(s)PerWeek
NbrofLec(s)PerWeek
NbrofLec(s)PerWeek

TBA

Duration
Duration
Duration

110minutes

COURSEDISTRIBUTION
Core
Elective
OpenforStudentCategory
CloseforStudentCategory

Yes
3rdand4thyearstudents

COURSEDESCRIPTION
Thecourseisdesignedfor3rdandfourthyearstudentswhohavealreadytakenabasiceconometricscourseandhasdoneatleast
onecourseinfinance.MBAstudentsarealsoallowedtotakethiscourse.Thecoursemostlyrevolvearoundthetechniqueswhich
arerequiredtomakeuseoffinancialdata.Themainfocusisontheempiricaltechniqueswhicharecommonlyusedintheanalysis
of financial markets and how they are applied to actual data. The course starts with the overview of the basic econometrics
techniquessuchasOLSestimationandtestingofhypothesis.InthesecondmodulewewilldiscussmodelssuchasARMAandARMA
whicharequitepopularfortimeseriesanalysisetc.Inthethirdmodulewewillfocusontechniquesrequiredtomakeprediction.In
thiscontextwewilllearnmodelsuchasARCHandGARCHmodelsetc.Inthefourthmodulewewillextendouranalysisformore
thanoneassetandestimatemodelssuchasVARandVEC.Inthefifthmodulewewilldiscussswitchingmodelstotakeintoaccount
theseasonalitiesinfinancialmarkets.

COURSEPREREQUISITE(S)

PrinciplesofFinance(FINN100)
Probability&Statistics(DISC203)

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COURSELEARNINGOBJECTIVES

Uponsuccessfulcompletionofthecourse,studentsshouldbeableto:

1. Developanunderstandingofbasictechniquestodoempiricalinvestigationoffinancialdata.
2.
3.

Understandthepropertiesoffinancialreturns
Enablestudentstotestvarioustheoriesoffinancesuchasstandardassetpricingmodels

4.

Understandtheprinciplesofautoregressivetimeseriesmodelsandevaluatetheirabilitytoforecast
financialvariables

5.

UnderstandARCHandGARCHmodelsandbeabletoapplythemtofinancialtimeseries

6.

EstimateVectorAutoregressive(VAR)modelsandinterprettheresults

7. Estimatemodelsinvolvingseasonalities

LEARNINGOUTCOMES

Moreover,studentsshouldalsolearnto:

Workindependentlyandinteams(forgroupassignments)

Evaluatecriticallyandapplyfinancialmodelstosolverealworldproblems

UNDERGRADUATEPROGRAMLEARNINGGOALS&OBJECTIVES

GeneralLearningGoals&Objectives
Goal1EffectiveWrittenandOralCommunication
Objective:Studentswilldemonstrateeffectivewritingandoralcommunicationskills
Goal2EthicalUnderstandingandReasoning
Objective:Studentswilldemonstratethattheyareabletoidentifyandaddressethicalissuesinanorganizational
context.
Goal3AnalyticalThinkingandProblemSolvingSkills
Objective:Studentswilldemonstratethattheyareabletoidentifykeyproblemsandgenerateviablesolutions.
Goal4ApplicationofInformationTechnology
Objective:Studentswilldemonstratethattheyareabletousecurrenttechnologiesinbusinessandmanagement
context.
Goal5TeamworkinDiverseandMulticulturalEnvironments
Objective:Studentswilldemonstratethattheyareabletoworkeffectivelyindiverseenvironments.
Goal6UnderstandingOrganizationalEcosystems
Objective:StudentswilldemonstratethattheyhaveanunderstandingofEconomic,Political,Regulatory,Legal,
Technological,andSocialenvironmentoforganizations.

MajorSpecificLearningGoals&Objectives
Goal7(a)DisciplineSpecificKnowledgeandUnderstanding
Objective:Studentswilldemonstrateknowledgeofkeybusinessdisciplinesandhowtheyinteractincluding
applicationtorealworldsituations(includingsubjectknowledge).
Goal7(b)Understandingthesciencebehindthedecisionmakingprocess(forMGSMajors)
Objective:Studentswilldemonstrateabilitytoanalyzeabusinessproblem,designandapplyappropriate
decisionsupporttools,interpretresultsandmakemeaningfulrecommendationstosupportthedecisionmaker

LahoreUniversityofManagementSciences
Indicatebelowhowthecourselearningobjectivesspecificallyrelatetoanyprogramlearninggoalsandobjectives.

PROGRAMLEARNINGGOALSAND
COURSELEARNINGOBJECTIVES
COURSEASSESSMENTITEM
OBJECTIVES
Goal1EffectiveWrittenandOral
e.g.(Providestudentopportunityto
Quizzesandhomework
Communication
demonstrateeffectivecommunication)
CLO#
Goal2EthicalUnderstandingand

Reasoning
Goal3AnalyticalThinkingandProblem Classparticipation
SolvingSkills
Goal4ApplicationofInformation
HomeworkwillbebasedonEViews+
Technology
STATA+RATSProgramming
Goal5TeamworkinDiverseand

MulticulturalEnvironments
Goal6UnderstandingOrganizational

Ecosystems
Goal7(a)DisciplineSpecificKnowledge Exams
Quizzes+Mid+Final
andUnderstanding
Goal7(b)Understandingthescience Exams
Quizzes+Mid+Final
behindthedecisionmakingprocess

GRADINGBREAKUPANDPOLICY

Assignment(s):
HomeWork:20%
Quiz(s):20%
MidtermExamination:25%
FinalExamination:35%

EXAMINATIONDETAIL

Midterm
Exam

FinalExam

Yes/No:YES
CombineSeparate:Combine
Duration:120minutes
PreferredDate:
ExamSpecifications:closedbooksandclosednotes

Yes/No:YES
CombineSeparate:Combine
Duration:120minutes
ExamSpecifications:closedbooksclosednotes

LahoreUniversityofManagementSciences
COURSEOVERVIEW
WEEK/
LECTURE/
TOPICS
MODULE
OverviewofBasicEconometrics
DerivingtheOLSestimates
Algebraicproperties
Derivingstatisticalproperties:
meanandvariance
1
Testingofhypothesis
Multipleregressionandtesting
ofhypothesis
ApplicationtoCAPMmodel

RegressionwithTimeSeriesData

2,3

4,5

MAprocess
ARprocess
ARMAprocess
stationaryandnonstationary
variables
Testingforunitroots(Dickey
FullerTest)
Testingassetpricingmodels

ModellingVolatility
ARCH
GARCH
EGARCHandothervariations
Recentadvancesinvolatility
estimationusinghighfrequency
datarealizedvolatility
Predictingriskandreturnsformultiple
assets
Vectorerrorcorrectionmodels
(VEC)
Vectorautoregressivemodels
(VAR)
Timevaryingvariancecovariance
matrices.
Estimatingimpulseresponse
functions

SwitchingModel
Seasonalitiesinfinancialmarkets
Modellingseasonalityinfinancial
data
Estimatingsimplepiecewise
linearfunctions

RECOMMENDED
READINGS

SESSIONOBJECTIVE(S)

Chapter2&3 (HGL),andchapter
3&4(CB)Chapter

Understandingtheframeworkof
basiceconometricsandtesting
ofhypothesis

Chapter12 (HGL),andchapter
5&7(CB)

LearningTimeseriesanalysis

Chapter14(HGL),andchapter8
MeasurementofTimeVarying
(CB)
Volatility

Chapter13(HGL),andchapter6
(CB)

AnalysisformorethanoneAsset

Chapter7(HGL) and Chapter9

(CB)

IntroductionofQualitative
variables

LahoreUniversityofManagementSciences

Markowswitchingmodels
ApplicationsofMarkowswitching
models

Textbook(s)/SupplementaryReadings

ChrisBrooks2002.IntroductoryEconometricsforFinance(CB)
Hill,Griffith,andLim2011.PrinciplesofEconometrics.4rhedition(HGL)
3. WalterEnders(2003).Appliedeconometrictimeseries,Wiley.

1.
2.