FIN 533 -- Special Topics in Finance
Reading List and Course Outline
Winter 1995
Prof. Ludger Hentschel
3-110E Carol Simon Hall, 275-1058
Prof. G. William Schwert
3-110L Carol Simon Hall, 275-2470
This course examines a variety of econometric methods for addressing
substantively important questions in capital markets research. It builds
on material presented by Jay Shanken in FIN 532. We will have one class
meeting per week. There will be an exam at the end of the quarter and
several homework problems assigned throughout the quarter. One of the
homework assignments will involve replicating and extending some empirical
results that are reported in some of the papers we are going to be
discussing in class (or in another paper that we mutually agree on).
Jay discussed material on CAPM tests, Bayesian methods, Mean Reversion,
Macroeconomic Variables and Stock Returns, and APT tests. This course
will cover related material on interest rates, inflation, time-varying
conditional expected returns and volatility, and applications of
econometric methods to financial problems (e.g., sample selection bias,
GMM estimation, or GARCH models). Emphasis will be on the application
of empirical methods to financial data.
The reading assignments will be announced in class and will more or less
follow the sequence given below. You will be provided with copies of
required readings (shown with an asterisk "*" below). There will be at
least one guest lecturer. In addition, we will ask each student who is
registered for the course to be responsible for leading the discussion of
one or more related papers during some part of the course. Of course,
we will be available to help you plan your lecture, and we will supplement
what you say in class. You should find a topic that interests you and
volunteer early.
This course is intended to help you overcome fear of using new methods
to analyze problems that interest you. If you have a specific topic or
area of interest that is not currently on the outline, we would be glad
to consider adding/substituting that material into the course.
Readings
- I. Time-Varying Expected Returns
- A. Interest Rates, Inflation, Real Activity and Stock Returns
- *Nelson, Charles R., and G. William Schwert, "On Testing the
Hypothesis that the Real Rate of Interest is Constant," American Economic
Review, 67 (June 1977) 478-486.
- *Campbell, John, "Stock Returns and the Term Structure," Journal of
Financial Economics, 18 (June 1987) 373-399.
- B. Mean Reversion in Prices and Other Predictable Components of Returns
- *Richardson, Matthew and James H. Stock, "Drawing Inferences
from Statistics Based on Multi-year Asset Returns," Journal of
Financial Economics, 25 (December 1990) 323-348.
- Fama, Eugene F., "Efficient Capital Markets II," Journal of
Finance, 46 (December 1991) 1575-1617.
- *Campbell, John Y., "A Variance Decomposition for Stock Returns,"
The Economic Journal, 101 (March 1991) 157-179.
- Campbell, John Y. and Robert Shiller, "The Dividend-Price Ratio
and Expectations of Future Dividends and Discount Factors," Review
of Financial Studies, 1 (Fall 1988) 195-228.
- Campbell, John Y. and Robert Shiller, "Cointegration and Tests
of Present Value Models," Journal of Political Economy, 95 (1987) 1062-1088.
- Kearns, Philip, "Testing Speculative Bubbles in Interest Rates
with the Present Value Model," working paper, William E. Simon
Graduate School of Business Administration, University of
Rochester, 1991.
- II. Time-Varying Volatility
- *Hentschel, Ludger, "All in the Family: Nesting Symmetric and
Asymmetric GARCH Models," Journal of Financial Economics, 39 (September 1995) 71-104.
- French, Kenneth, G. William Schwert and Robert Stambaugh,
"Expected Stock Returns and Volatility,"
Journal of Financial Economics, 19 (September 1987) 3-29.
- *Schwert, G. William, "Why Does Stock Market
Volatility Change Over Time?" Journal of Finance, 44 (December 1989) 1115-1153.
- Schwert, G. William and Paul Seguin, "Heteroskedasticity in Stock
Returns," Journal of Finance, 45 (September 1990) 1129-1155.
- Harvey, Campbell R., "Time Varying Conditional Covariances in Tests
of Asset Pricing Models," Journal of Financial Economics, 24
(October 1989) 289-317.
- *Turner, Christopher M., Richard Startz and Charles R. Nelson,
"A Markov Model of Heteroskedasticity, Risk and Learning in the Stock
Market," Journal of Financial Economics, 25 (November 1989) 3-22.
- Pagan, Adrian R. and G. William Schwert, "Alternative Models for
Conditional Stock Volatility," Journal of Econometrics, 45
(July 1990), 267-290.
- III. Limited Dependent Variable Models & Sample Selection Bias
- Maddala, G. S., Limited-Dependent and Qualitative Variables in
Econometrics, Cambridge University Press, Cambridge, 1983, pp.
221-274 and 365-370.
- *Eckbo, B. Espen, Vojislav Maksimovic, and Joseph Williams,
"Consistent Estimation of Cross-Sectional Models in Event Studies,"
Review of Financial Studies, 3 (1990) 343-365.
- *Noe, Christopher F., "Signaling Implications of the Secondary
Component in an Initial Public Offering," working paper, William E.
Simon Graduate School of Business Administration, University of
Rochester, 1994.
- *Comment, Robert and G. William Schwert, "Poison or Placebo:
Evidence on the Deterrence and Wealth Effects of Modern Antitakeover
Measures," Journal of Financial Economics, 39 (forthcoming 1995).
- Bhagat, Sanjai, and Richard H. Jefferis, "Voting Power in the Proxy
Process: The Case of Antitakeover Charter Amendments," Journal of
Financial Economics, 30 (1991) 193-225.
- *Lo, Andrew W. and A. Craig MacKinlay, "Data-snooping Biases in Tests
of Financial Asset Pricing Models," Review of Financial Studies, 3
(1988) 431-467.
- IV. Speed of Adjustment to Macroeconomic Information
- *Huberman, Gur, and G. William Schwert, "Information Aggregation,
Inflation, and the Pricing of Indexed Bonds," Journal of Political
Economy, 93 (February 1985) 92-114.
- Schwert, G. William, "The Adjustment of Stock Prices to Information
About Inflation," Journal of Finance, 36 (March 1981) 15-29.
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