Econometrıa Financiera

Karoll GOMEZkgomezp@unal.edu.co

http://karollgomez.wordpress.com

Segundo semestre 2018

I. Introduccion

Motivacion I

Definition:

Financial Econometrics is concerned with the statistical analysis offinancial data.

I the method of inference for the financial economist ismodel-based statistical inference- financial econometrics.

I while econometrics is also essential in other branches ofeconomics, what distinguishes financial economics is the centralrole that uncertainty plays in both financial theory and itsempirical implementation.

Motivacion II

Financial econometrics is concerned mainly about:

I asset pricing

I portfolio allocation

I risk management and diversification

studying issues like:

I market microstructure and liquidity,

I asset return volatility and correlation,

I and interest rate modeling

and also for understanding pivotal issues in:

I Stock market

I Corporate finance

I Behavioral finance

I as well as regulatory purposes and more.

Motivacion III

Why is Financial econometrics important?

I Financial economics concentrates on decision making whentwo considerations are particularly important: first, some of theoutcomes are risky; second, both the decisions and the outcomesmay occur at different times.

I The past few decades have been characterized by anextraordinary growth in the use of quantitative methods in theanalysis of various asset classes; be itI equities,I fixed income instruments,I commodities,I derivative securities.

Motivacion IV

So that, financial econometrics is related to the application ofstatistical and mathematical techniques to problems in finance.

Examples:

I Testing whether financial markets are efficient.

I Testing whether the CAPM or APT represent superior modelsfor the determination of returns on risky assets.

I Measuring and forecasting the volatility of bond returns.

I Modelling long-term relationships between prices and exchangerates

I Determining the optimal hedge ratio for a spot position in oil.

I Forecasting the correlation between the returns to the stockindices of two countries.

Risk, prices and returns I

Much of finance is concerned with measuring and managingfinancial risk.

Risk, prices and returns II

Risk, prices and returns III

Risk, prices and returns IV

Risk, prices and returns V

Remarks:

� The return on an investment is its revenue as a fraction of theinitial investment.

� It represents the net return for the holding period from t− 1 to t.

� Risk means uncertainty in future returns from an investment, inparticular, that the investment could earn less than the expectedreturn and even result in a loss, that is, a negative return.

Risk, prices and returns VI

Technical Remarks:

Risk, prices and returns VII

Cross-sectionally

Risk, prices and returns VIII

Over time

Stylized facts on asset returns I

Note:

I The leverage effect stems from the fact that losses have a greater influence onfuture volatilities than do gains.

I Asymmetry means that the distribution of losses has a heavier tail than thedistribution of gains

Stylized facts on asset returns II

Example: Standard and Poors 500 Index

Stylized facts on asset returns III

Stylized facts on asset returns IV

Stylized facts on asset returns V

Basic model for asset returns I

Basic model for asset returns II

Basic model for asset returns III

Basic model for asset returns IV

� When they are different, conditional distribution is relevant forissues involving predictability and asset pricing.

� Asset pricing tries to understand the prices of claims withuncertain payments.