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Financial Econometrics

This unit covers statistics econometrics tools to: analyse and model the key characteristics of
empirical distributions of asset returns; model and estimate the simple capital asset pricing
model and its extensions; and test for various financial market hypotheses. It includes
modelling, estimating and analysing time series properties of stationary and non-stationary
financial data: and modelling and estimating simple and multivariate long-run relationships
among financial variables; and conducting Granger causality testing. It also includes
modelling and estimation of ARCH/GARCH volatilities and time-varying risk premium on
financial assets; and estimation of value-at-risks and expected shortfalls of assets and
portfolios. Students will be requested to work through a number of questions and projects with
a broad range of financial data sets.

The information contained in this unit guide is correct at time of publication. The University has the right to
change any of the elements contained in this document at any time.
Last updated: 25 July 2014


Mode of Delivery

On campus


3 hours per week

Unit Relationships

Students must be enrolled in course 3818, 3850 or 4412, or
must have passed AFF9641, BFF5925 or AFF9250.
ETC3460, ETC4346, ETF3300, ETF9300

Chief Examiner and
Unit Coordinator

Dr Hsein Kew


Professor Param Silvapulle

Dr Hsein Kew (email:




Please check the unit Moodle site.

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Learning Outcomes
The learning goals associated with this unit are to:
1. describe, interpret and critically analyse financial data
2. apply the simple and multivariate models and theory to model the relationship among
financial variables, interpret the results, and conduct reliable statistical inference
3. test for stationary behaviour of financial time series
4. model the long-run relationships among financial time series
5. model the volatility in financial data and perform value-at-risk calculations that are used
as an input into the financial decision making process
6. be proficient at econometric modelling of financial data using the software EVIEWS,
which is widely used in the commercial world.


Week Activities Assessment
0 No formal assessment is undertaken
in week 0
1 Financial Data
2 Analysing Financial Data
3 Linear Regression Part 1
4 Linear Regression Part 2
5 Linear Regression Part 3
6 Stationary Time Series
Modelling and Forecasting
Part 1

7 Stationary Time Series
Modelling and Forecasting
Part 2
Assignment 1 due Thursday
8 Univariate Non-Stationary Time
Series Models

9 Multivariate Non-Stationary
Time Series Models

10 ARCH/GARCH models Part 1
11 ARCH/GARCH models Part 2 Assignment 2 due Thursday
12 ARCH/GARCH models Part 3 Assignment 3 due Friday
SWOT VAC No formal assessment is undertaken
Examination period LINK to Assessment Policy:

Teaching Approach
There are 1 x 2-hour lecture each week and 1 x 1-hour tutorial each week.
Assessment Summary
Within semester assessment: 40%
Examination: 60%
Assessment Task Value Due Date
Assignment 1 15% Week 7, Thursday 11 September
Assignment 2 15% Week 11, Thursday 16 October
Assignment 3 10% Week 12, Friday 24 October
Final Examination 60% To be advised

Hurdle Requirements
There is a hurdle requirement in this unit. The learning outcomes in this unit require students
to demonstrate in the final summative assessment task a comprehensive understanding of
the topics covered in the unit. This is demonstrated by the requirement that the student must
attain a mark of at least 45% in the final examination.

A student's final mark is normally the sum of the marks obtained in all of the assessment
tasks in the unit. Where a student fails the unit solely because of failure to satisfy the hurdle
requirement, a mark of 48 will be returned for the unit.

Second marking
Where an assessment task is given a fail grade by an examiner, that piece of work will be
marked again by a second examiner who will independently evaluate the work, and consult
with the first marker. No student will be awarded a fail grade for an assessment task or unit
without a second examiner confirming the result.

Note: Exceptions to this are individual pieces of assessment contributing 10% or less of the
final mark, unless the total of such pieces exceeds 30% of the final mark.

Return of final marks
Faculty policy states that 'the final mark that a student receives for a unit will be determined
by the Board of Examiners on the recommendation of the Chief Examiner taking into account
all aspects of assessment'.

The final mark for this unit will be released by the Board of Examiners on the date nominated
in the Faculty Calendar. Student results will be accessible through the portal.


Assessment Tasks

Assignment 1:
Value: 15%
Extensions and penalties: Late assignments, where approval for late submission has not
been given, will be penalised at the rate of 5% per business day of the total 15% allocated
to Assignment 1, for up to 3 days, at which time a mark of zero will be given for Assignment 1.

Assignments 2:
Value: 15%
Extensions and penalties: Late assignments, where approval for late submission has not
been given, will be penalised at the rate of 5% per business day of the total 15% allocated
to Assignment 2, for up to 3 days, at which time a mark of zero will be given for Assignment 2.

Assignments 3:
Value: 10%
Extensions and penalties: Late assignments, where approval for late submission has not
been given, will be penalised at the rate of 5% per business day of the total 10% allocated
to Assignment 3, for up to 2 days, at which time a mark of zero will be given for Assignment 3.

Assignment submission
Hard Copy Submission: Assignments must include a cover sheet. The coversheet is
accessible via the Monash portal page located at under the heading
Learning and teaching tools. Please keep a copy of tasks completed for your records.

Assignments should be submitted to your tutors mailbox on Level 5, Building H, Caulfield
Campus. DO NOT submit your assignment electronically or by email.
Please keep a copy of tasks completed for your records.

Returning assignments
Tutors will return assignments in class or during their consultation times. Students must retain
a copy of their assignments until after they have received their final mark for the unit.

Assessment criteria
Assessment Criteria Grading Descriptors available at:

Final Examination
Value: 60%
Examination Date and Location: This examination will be held during the official
examination period. The examination timetable which provides full details of the examination
schedule can be accessed through the portal.
Examination Duration: This will be a 2-hour examination.
Instructions to Students: The exam is closed book. As English is the language of instruction
at Monash University, foreign language translation dictionaries are not permitted in
examinations held by the Faculty.

Referencing requirements
To build your skills in citing and referencing, and using different referencing styles, see the online
tutorial Academic Integrity: Demystifying Citing and Referencing at

Recommended text/readings
Brooks, C, Introductory Econometrics for Finance, 2
edition, Cambridge University Press,
2008. Copies are available at the Caulfield Library.

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through the virtual learning environment Moodle site. You can access Moodle via the portal. Students must regularly check Moodle for announcements.


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