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This book brings together domains in financial asset pricing and valuation, financial investment theory, econometrics modeling, and the empirical analyses of financial data by applying appropriate econometric techniques. These domains are highly intertwined and should be properly understood in order to correctly and effectively harness the power of data and methods for investment and financial decision-making. The book is targeted at advanced finance undergraduates and beginner professionals performing financial forecasts or empirical modeling who will find it refreshing to see how forecasting is not simply running a least squares regression line across data points, and that there are many minefields and pitfalls to avoid, such as spurious results and incorrect interpretations.
Sample Chapter(s)
Chapter 1: Probability Distribution and Statistics (197 KB)
Chapter 3: Two-Variable Linear Regression Application: Financial Hedging (183 KB)
Chapter 9: Estimation Errors and T-Tests Application: Eventstudies (128 KB)
Chapter 12: Specification Errors (198 KB)
Contents:
- Probability Distribution and Statistics
- Statistical Laws and Central Limit Theorem Application: Stock Return Distributions
- Two-Variable Linear Regression Application: Financial Hedging
- Model Estimation Application: Capital Asset Pricing Model
- Constrained Regression Application: Cost of Capital
- Time Series Analysis Application: Inflation Forecasting
- Random Walk Application: Market Efficiency
- Autoregression and Persistence Application: Predictability
- Estimation Errors and T-Tests Application: Event Studies
- Multiple Linear Regression and Stochastic Regressors
- Dummy Variables and ANOVA Application: Time Effect Anomalies
- Specification Errors
- Cross-Sectional Regression Application: Testing CAPM
- More Multiple Linear Regressions Application: Multi-Factor Asset Pricing
- Errors-in-Variable Application: Exchange Rates and Risk Premium
- Unit Root Processes Application: Purchasing Power Parity
- Conditional Heteroskedasticity Application: Risk Estimation
- Mean Reverting Continuous Time Process Application: Bonds and Term Structures
- Implied Parameters Application: Option Pricing
- Generalised Method of Moments Application: Consumption-Based Asset Pricing
Readership: Advanced finance undergraduates and beginner professionals performing financial forecasts or empirical modeling.
