15.442 -- Advanced Financial Economics III
Course Description: Recent empirical methods in finance, including: the estimation and testing of market efficiency; the random walk hypothesis; the CAPM/APT; various term structure models; option pricing theories; and market microstructures; performance evaluation; bond rating and default analysis; event study methodology; continuous-time econometrics; and general time series methods. An empirical term project is required. Some econometric background and rudimentary computer programming skills are assumed. Primarily for doctoral students in finance, accounting, and economics.

The details:
This course covers the empirical techniques used most often in the analysis of financial markets and how such techniques are applied to actual market data. The financial applications may be loosely divided into five categories: the statistical properties of financial asset prices and tests of market efficiency (e.g. the random walk hypothesis, event study methodology); the empirical implementation of equilibrium models of financial asset prices (e.g. the CAPM/APT/ICAPM, consumption-based asset-pricing models); the empirical implementation of arbitrage models of financial asset prices (e.g. dynamic hedging strategies, derivative-pricing models); market microstructure models (e.g. statistical models of tick data, transactions-cost measurement and control); and non-standard approaches to financial economics (e.g. technical analysis, market psychology, genetic algorithms, neural networks, chaos theory). The statistical techniques covered in this course include: asymptotic statistical inference, continuous-time econometrics, nonparametric estimation, Bayesian decision theory, discrete-choice models, Monte Carlo simulation, and numerical optimization techniques.

This class is at the Graduate level
This course is also known as: 14.442J
Instructor: A. Lo
Prerequisites: 14.382, 15.416J, or permission of instructor

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