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ECON334 – Financial Econometrics

2017 – S2 Day

General Information

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Unit convenor and teaching staff Unit convenor and teaching staff Unit Convenor
George Milunovich
E4A 436
TBA via iLearn
Teaching Assistant/Tutor
Andrew Evans
TBA via iLearn
Tutor
Fazeel Mohamed Jaleel
E4A 444
TBA via iLearn
Tutor
To be announced
TBA via iLearn
Andrew Evans
Credit points Credit points
3
Prerequisites Prerequisites
27cp at 100 level or above including (6cp at 200 level including (ECON241 or STAT272))
Corequisites Corequisites
Co-badged status Co-badged status
Unit description Unit description
This unit is highly recommended for students majoring in economics and finance. Finance professionals use econometric techniques in portfolio management, risk management and securities analysis. This unit is intended to provide students with the tools necessary for financial applications. Statistical techniques are developed within the context of particular financial applications. Recent empirical evidence is also discussed. Although ECON232 is not a prerequisite, it is highly recommended.

Important Academic Dates

Information about important academic dates including deadlines for withdrawing from units are available at http://students.mq.edu.au/student_admin/enrolmentguide/academicdates/

Learning Outcomes

  1. Apply econometric methods to modelling, analysing and forecasting financial data.
  2. Understand different estimation methodologies.
  3. Critically evaluate empirical econometric work.
  4. Present results to a non-technical audience in a clear and understandable manner.

Assessment Tasks

Name Weighting Hurdle Due
Class Test 30% Week 6
Individual Assignment 30% Week 10
Final Examination 40% No University Examination Period

Class Test

Due: Week 6
Weighting: 30%

The class test will be held during your assigned lecture in Week 6. The test will consist of multiple-choice questions, and will cover all material up to and including Week 5. A calculator is needed for the test and attendance is compulsory.  If you fail to attend the test you will be awarded a zero mark. There will be no catch-up or supplementary tests. However, for students who experience serious misadventure and are unable to attend the test should apply for disruption to studies with appropriate documentary evidence within 5 working days of the test. For those students, missed assessment will be covered by a supplementary assessment that could include an oral component, which will be two weeks after the date of the original assessment.


This Assessment Task relates to the following Learning Outcomes:
  • Apply econometric methods to modelling, analysing and forecasting financial data.
  • Understand different estimation methodologies.

Individual Assignment

Due: Week 10
Weighting: 30%

The assignment is due at 4pm on Friday of Week 10. No extensions will be granted. There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24 hour period or part thereof that the submission is late (for example, 25 hours late in submission - 20% penalty). This penalty does not apply for cases in which an application for disruption of studies is made and approved. No submission will be accepted after solutions have been posted. Students are strongly recommended to keep a photocopy of their assignment to ensure against loss. In early Week 10, tutorial boxes designated ECON334 will be prepared in the Business and Economics Student Services (BESS) where students can submit their assignments. In addition, students must also submit an electronic copy through iLearn. 


This Assessment Task relates to the following Learning Outcomes:
  • Apply econometric methods to modelling, analysing and forecasting financial data.
  • Understand different estimation methodologies.
  • Critically evaluate empirical econometric work.
  • Present results to a non-technical audience in a clear and understandable manner.

Final Examination

Due: University Examination Period
Weighting: 40%

The final exam will consist of multiple-choice questions and short-answer questions. Computer outputs and statistical tables are provided. Only non-programmable calculators without alphabetic storage capability are allowed into the examination room. The time and venue of the exam will be organised and announced in due time by the University.

You are expected to attend the final examination at the time and place designated in the University Examination Timetable. The timetable will be available in Draft form approximately eight weeks before the commencement of the examinations and in Final form approximately four weeks before the commencement of the examinations. http:// exams.mq.edu.au/.

The only exception to not sitting the examination at the designated time is because of documented illness or unavoidable disruption. In these circumstances you may wish to consider applying for disruption to studies. The University’s policy on special consideration process is available at http://www.mq.edu.au/policy/docs/disruption_studies/policy.html

If a Supplementary Examination is granted as a result of disruptions to study the examination will be scheduled after the conclusion of the official examination period.

The Macquarie university examination policy details the principles and conduct of examinations at the University.  The policy is available at: http://www.mq.edu.au/policy/docs/examination/policy.htm

 


This Assessment Task relates to the following Learning Outcomes:
  • Apply econometric methods to modelling, analysing and forecasting financial data.
  • Understand different estimation methodologies.
  • Critically evaluate empirical econometric work.

Delivery and Resources

Classes

  • Number and length of classes: 3 hours face-to-face teaching per week consisting of 1 x 2 hour lecture and 1 x 1 hour tutorial
  • The timetable for classes can be found on the University web site at:http://www.timetables.mq.edu.au/

Required and Recommended Texts and/or Materials

The prescribed textbook for the unit is:

Brooks, C. (2014) Introductory Econometrics for Finance, 3rd Edition, Cambridge University Press. ISBN: 9781107661455.

It can be purchased from the Macquarie University Co-op Bookshop, and it is also available in the Macquarie Library. Additional references, though useful but not required, include:

(i) Campbell, J., Lo, A., and Mackinlay, C. (1997) The Econometrics of Financial Markets, Princeton University Press. (This book is too advanced for our class, but contains a lot of interesting material).

(ii) Diebold, F. (2007) Elements of Forecasting, 4th Edition, South-Western College.

(iii) Enders, W. (2014) Applied Econometric Time Series, 4th Edition, Wiley.

• Material such as lecture slides, examples, and tutorial questions will be available on the unit home page. The text and lecture notes, together with the lectures and additional references will provide students with a clear indication of the basic content of the unit.

• It is recommended that students attend all lectures and tutorials for several reasons including:

• Not all the material in the text is included in the unit, and not all the material in the unit is covered in the text. In some places the text deals with issues in greater depth than is necessary for the unit, and in other places it doesn’t go far enough. The lectures contain all the unit material taught at the level required for the assessment tasks, and are your guide to the unit content.

• The approaches to some problems that are recommended by the lecturer are different to those in the text.

• The lectures will include guidance about the style and content of the final exam and recommendation about study technique.

•  It is difficult (and often impossible) for staff to provide meaningful assistance to students outside class times on topics for which they did not attend the relevant lectures and tutorials.

Technology Used and Required

Students are required to use a computer to carry out certain tasks of the course, such as tutorials and assignments. The software programs used in this course include EViews 9 and Microsoft Excel. 

Unit Web Page

• Course material is available on the learning management system (iLearn), which can be found at: http://ilearn.mq.edu.au.

• The following information will be available on iLearn:

  • Unit Guide
  • Announcements
  • Lecture Slides
  • Selected Tutorial Solutions
  • Information on Assessments
  • Staff Consultation Hours and Contact Details
  • Other relevant material

You are strongly encouraged to regularly visit the website and use it as a resource centre to assist with your learning. If you are unable to access the website because you are not aware of or have forgotten your username and password, please contact the IT helpdesk located on Level 1 of the Library on 9850 6500. The IT helpdesk will also be able to assist you with using iLearn. Please remember to log out when you have finished using iLearn. Failure to do so could result in unauthorised access to your account.

Learning and Teaching Activities

This unit is taught as a mix of tutorials and lectures. The lectures are designed to provide the tools which can then be applied in tutorials. Tutorials are based mainly on empirical applications which require the use of econometric software packages. How to use these packages is taught in tutorials which are held in the computer labs.

  • Lectures – large group learning (2 hour each teaching week)
  • Self-study activities – learning by doing (about 6 hours each teaching week and 9 hours each week during the 2-week mid-semester recess)
  • Tutorials –small group learning (1 hour each teaching week)

Unit Schedule

Week No.

Lecture Topic

Tutorials

1

Characteristics of Financial Data; Revision of Basic Mathematical and Statistical Concepts                   

Textbook: Chapter 1 and Chapter 2, all sections. Lecture Notes. 

 

2

Correlation and Basic Regression Methods

Textbook: Chapter 3, all sections, excluding the appendix. Lecture Notes.

Tutorial Week 2

3

Multiple Linear Regression Model

Textbook: Chapter 4, Sections 4.1 to 4.8 inclusive, Section 4.10. Lecture Notes.

Tutorial Week 3

4

Regression Model Diagnostics and Seasonality

Textbook: Chapter 5, all sections. Chapter 10, Sections 10.1 to 10.3 inclusive. Lecture Notes.

Tutorial Week 4

5

Time Series Models

Textbook: Chapter 6, Sections 6.1 to 6.5. Lecture Notes.

Tutorial Week 5

6

Class Test

Tutorial Week 6

7

Identification of Time Series Models

Textbook: Chapter 6, Sections 6.6 to 6.9. Lecture Notes.

Tutorial Week 7
 

Mid-semester Break

 

8

Forecasting with Time Series Models

Textbook: Chapter 6, Sections 6.11 and 6.12. Lecture Notes.

Tutorial Week 8

9

Modeling Volatility: Specification and Estimation of ARCH and GARCH Models

Textbook: Chapter 9, Sections 9.1 to 9.4 inclusive, Sections 9.6 to 9.9 inclusive. Lecture Notes.

Tutorial Week 9

10

Modeling Volatility: Extensions of ARCH and GARCH Models. 

Textbook: Chapter 9, Sections 9.10 to 9.16 inclusive, Section 9.18. Lecture Notes.

Assignment due Friday 4pm at BESS.

Tutorial Week 10

11

Forecasting Volatility.

Textbook: Chapter 9, Sections 9.17, 9.19. Lecture Notes.

Tutorial Week 11

12

Long-Run Relationships in Finance

Textbook: Chapter 8, Sections 8.1, 8.3 to 8.6 inclusive. Lecture Notes.

Tutorial Week 12

13

Bivariate Autoregressive Models

Textbook: Chapter 7, Sections 7.11, 7.13. Lecture Notes. 

Tutorial Week 13

Learning and Teaching Activities

Lectures - large group learning (2 hour each teaching week)

Lectures are intended to provide an overview of statistical and econometrics techniques that are critical to the core themes of the unit. Students are expected to read the relevant chapters before each lecture. Additional reading material such as academic papers and research reports will be provided on the website.

Self-study activities - learning by doing (about 6 hours each teaching week and 9 hours each week during the 2-week mid-semester recess)

ECON334 relies heavily on independent learning where students read the relevant chapter, revise the lecture notes, prepare answers to the pre-set tutorial questions and extend themselves by doing additional reading, questions, exercises and problems.

Tutorials - small group learning (1 hour each teaching week)

Tutorials constitute a critical learning experience of this unit and students must attend them. The tutor will facilitate a highly student-centred discussion of answers to pre-set tutorial questions. A tutorial is also an active forum to present to the tutor difficulties you encountered when preparing for the pre-set tutorial questions. Ask your tutor questions and further guidance on how to approach questions. Students are expected to complete the tutorials empirical work and attempt the tutorial questions before each tutorial.

Policies and Procedures

Macquarie University policies and procedures are accessible from Policy Central. Students should be aware of the following policies in particular with regard to Learning and Teaching:

Academic Honesty Policy http://mq.edu.au/policy/docs/academic_honesty/policy.html

Assessment Policy http://mq.edu.au/policy/docs/assessment/policy_2016.html

Grade Appeal Policy http://mq.edu.au/policy/docs/gradeappeal/policy.html

Complaint Management Procedure for Students and Members of the Public http://www.mq.edu.au/policy/docs/complaint_management/procedure.html​

Disruption to Studies Policy (in effect until Dec 4th, 2017): http://www.mq.edu.au/policy/docs/disruption_studies/policy.html

Special Consideration Policy (in effect from Dec 4th, 2017): https://staff.mq.edu.au/work/strategy-planning-and-governance/university-policies-and-procedures/policies/special-consideration

In addition, a number of other policies can be found in the Learning and Teaching Category of Policy Central.

Student Code of Conduct

Macquarie University students have a responsibility to be familiar with the Student Code of Conduct: https://students.mq.edu.au/support/student_conduct/

Results

Results shown in iLearn, or released directly by your Unit Convenor, are not confirmed as they are subject to final approval by the University. Once approved, final results will be sent to your student email address and will be made available in eStudent. For more information visit ask.mq.edu.au.

Academic Honesty

The nature of scholarly endeavour, dependent as it is on the work of others, binds all members of the University community to abide by the principles of academic honesty. Its fundamental principle is that all staff and students act with integrity in the creation, development, application and use of ideas and information. This means that:

  • all academic work claimed as original is the work of the author making the claim
  • all academic collaborations are acknowledged
  • academic work is not falsified in any way
  • when the ideas of others are used, these ideas are acknowledged appropriately.

Further information on the academic honesty can be found in the Macquarie University Academic Honesty Policy at http://www.mq.edu.au/policy/docs/academic_honesty/policy.html

Grades

Macquarie University uses the following grades in coursework units of study:

  • HD - High Distinction
  • D - Distinction
  • CR - Credit
  • P - Pass
  • F - Fail

Grade descriptors and other information concerning grading are contained in the Macquarie University Grading Policy which is available at:

http://www.mq.edu.au/policy/docs/grading/policy.html

Grading Appeals and Final Examination Script Viewing

If, at the conclusion of the unit, you have performed below expectations, and are considering lodging an appeal of grade and/or viewing your final exam script please refer to the following website which provides information about these processes and the cut off dates in the first instance. Please read the instructions provided concerning what constitutes a valid grounds for appeal before appealing your grade.

http://www.businessandeconomics.mq.edu.au/new_and_current_students/undergraduate_current_students/how_do_i/grade_appeals/

Disruption to Study Policy

The University is committed to equity and fairness in all aspects of its learning and teaching. In stating this commitment, the University recognises that there may be circumstances where a student is prevented by unavoidable disruption from performing in accordance with their ability. A special consideration policy exists to support students who experience serious and unavoidable disruption such that they do not reach their usual demonstrated performance level. The policy is available at:

http://mq.edu.au/policy/docs/disruption_studies/policy.html​

Student Support

Macquarie University provides a range of support services for students. For details, visit http://students.mq.edu.au/support/

Learning Skills

Learning Skills (mq.edu.au/learningskills) provides academic writing resources and study strategies to improve your marks and take control of your study.

Student Enquiry Service

For all student enquiries, visit Student Connect at ask.mq.edu.au

Equity Support

Students with a disability are encouraged to contact the Disability Service who can provide appropriate help with any issues that arise during their studies.

IT Help

For help with University computer systems and technology, visit http://www.mq.edu.au/about_us/offices_and_units/information_technology/help/

When using the University's IT, you must adhere to the Acceptable Use of IT Resources Policy. The policy applies to all who connect to the MQ network including students.

Graduate Capabilities

Discipline Specific Knowledge and Skills

Our graduates will take with them the intellectual development, depth and breadth of knowledge, scholarly understanding, and specific subject content in their chosen fields to make them competent and confident in their subject or profession. They will be able to demonstrate, where relevant, professional technical competence and meet professional standards. They will be able to articulate the structure of knowledge of their discipline, be able to adapt discipline-specific knowledge to novel situations, and be able to contribute from their discipline to inter-disciplinary solutions to problems.

This graduate capability is supported by:

Learning outcomes

  • Apply econometric methods to modelling, analysing and forecasting financial data.
  • Understand different estimation methodologies.
  • Critically evaluate empirical econometric work.
  • Present results to a non-technical audience in a clear and understandable manner.

Assessment tasks

  • Class Test
  • Individual Assignment
  • Final Examination

Critical, Analytical and Integrative Thinking

We want our graduates to be capable of reasoning, questioning and analysing, and to integrate and synthesise learning and knowledge from a range of sources and environments; to be able to critique constraints, assumptions and limitations; to be able to think independently and systemically in relation to scholarly activity, in the workplace, and in the world. We want them to have a level of scientific and information technology literacy.

This graduate capability is supported by:

Learning outcomes

  • Apply econometric methods to modelling, analysing and forecasting financial data.
  • Understand different estimation methodologies.
  • Critically evaluate empirical econometric work.

Assessment tasks

  • Class Test
  • Individual Assignment
  • Final Examination

Effective Communication

We want to develop in our students the ability to communicate and convey their views in forms effective with different audiences. We want our graduates to take with them the capability to read, listen, question, gather and evaluate information resources in a variety of formats, assess, write clearly, speak effectively, and to use visual communication and communication technologies as appropriate.

This graduate capability is supported by:

Learning outcome

  • Present results to a non-technical audience in a clear and understandable manner.

Assessment tasks

  • Individual Assignment
  • Final Examination

Research and Practice

•   This unit uses research by Macquarie University researchers as follows:

1. Bui, A-T, and Fisher, L., (2016) "The Relative Term Structure and the Australian - US Exchange Rate", Studies in Economics and Finance, Vol. 33(3), 417-436.

2. Fisher, L, and Voss, G. (2004) "Consumption, Wealth and Expected Stock Returns in Australia", Economic Record, Vol. 80, 359-372.

3.  Heaton, C, Milunovich, G, and Passé-de Silva, A., (2011) “International Commodity Prices and the Australian Stock Market”, Economic Record, Vol. 87, 37-44.

4.  Milunovich, G. (2011) “Measuring the Impact of the GFC on European Equity Markets”, Economics Bulletin, Vol. 31(2), 1237-1246.

5. Milunovich, G. and Tan, A. (2013) “Testing for Contagion in US Industry Portfolios – A Four-Factor Pricing Approach”, Applied Financial Economics, Vol. 23(1),  15-26.

•   This unit uses research from external sources (as referenced in the textbook)

•   This unit gives you practice in applying research findings in your assignments

•   This unit gives you opportunities to conduct your own research