Lectures on

Financial Econometrics

Chi-Nan University

May - June 2003

Instructor: Professor Kao, email: cdkao@maxwell.syr.edu

Time and Location: Wednesday 9-12.

Office Hours:

Textbooks:

(C) Cochrane, J. H. (2001), Asset Pricing, Princeton University Press.

(CLM) Campbell, J.Y., A.W. Lo, and A.C. MacKinlay (1997). The Econometrics of Financial Markets. Princeton University Press.

(GJ) Gourieroux, C. and Jasiak, J. (2001), Financial Econometrics, Princeton University Press.

Course Outline:

1. The Capital Asset Pricing Model

   • CLM, Chapter 5.

   • C, Chapter 9.

2. Multifactor Pricing Models

   • CLM, Chapter 6.

   • C, Chapter 9.

3. Present-Value Relations

   • CLM, Chapter 7.

   • GJ, Chapter 7.

4. Intertemporal Equilibrium Models

   • CLM, Chapter 8.

   • GJ, Chapter 8.

5. Generalized Method of Moments (GMM):

   Lecture Notes on GMM Estimation:

   web.mit.edu/14.384/www/384lecture10.pdf.

   http://www.ssc.wisc.edu/~bhansen/notes/chapter11.pdf.

   GJ, Chapter 8.

   C, Chapter 10.

   CLM, A1, A.2.

6. Weight Matrix

   1. • CLM, A.3.

      • C, Chapter 11.7.

      • Andrews, D. W. K. (1991), "Heterokedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, 59, 817-858.

      • Newey, W. K., and West, K. D. (1987), "A Simple Positive Semi-Definite Heterokedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, 55, 703-708.

      • Newey, W. K., and West, K. D. (1994), "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, 61, 631-653.

7. Weak Instruments

   C, Chapter 8.

   Stock, J. H.,Wright, J. H., and Yogo, M. (2002), "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, 20, 518-529.

   Bekker, P. A. (1994), "Alternative Approximations to the Distributions of Instrumental Variable Estimators," Econometrica, 62, 657-681.

   Bound, J., Jaeger, D. A., and Baker, R. (1995), "Problems with Instrumental Variables Estimation When the Correlation Between Instruments and the Endogenous Explanatory Variable Is Weak," Journal of the American Statistical Association, 90, 443-450.

   Staiger, D., and Stock, J. H. (1997), "Instrumental Variables Regressions with Weak Instruments," Econometrica, 65, 557-586.

   Stock, J. H., and Wright, J. H. (2000), `GMM with Weak Identification," Econometrica, 68, 1055-1096.

   Yogo, M., (2002), "Estimating the Elasticity of Intertemporal Substitution when Instruments are Weak," http://www.bus.qut.edu.au/esam02/program/papers/Yogo_Motohiro.pdf.

   Stock, J. H., and Yogo, M., (2001), "Testing for Weak Instruments in Linear IV Regression,"

   http://www.nber.org/papers/t0284.pdf.