FN: FINANCIAL ECONOMETRICS

(Credits: 2.0)

Program and Semester: MBA Year II-2020

Calendar: December 2019-April 2020
Instructor: Dr. Inderjit Kaur

Course Description:
The course on ‘Financial Econometrics’ covers essential technical skills to analyse the financial
markets data. The emphasis of this course is econometric tools and techniques that can be applied
to make decisions in financial markets. The course will begin with basic econometrics, stylized
facts of financial markets data and econometric techniques for that.

Course Learning Outcomes (CLOs):

Upon successful completion of course, the student should be able to:
CLO1: Identify the stylized facts of financial time series
CLO2: Apply linear and non-linear time series models on financial data
CLO3: Apply conditional heteroskedastic models on financial data
CLO4: Apply multivariate time series models on financial data

Course Outline and Session Plan

CLO 1: Identify the stylized facts of financial time series
Day 1:
Session 1: Introduction to econometrics: econometric model, OLS technique; types of data: Cross-
section, Time series, Panel data
Session 2: Stylized facts of financial time series data: Challenges with OLS

CLO2: Apply linear and non-linear time series models on financial data
Day 2:
Session 3: Applying linear time series models such as AR, MA, ARMA on financial data and
forecast returns
Session 4: Applying non-linear time series models on financial data and forecasting time series

CLO3: Apply conditional heteroskedastic models on financial data

Day 3:
Session 5: Learning concept of conditional heteroskedascticity
Session 6: Applying conditional heteroskedasticity models such as ARCH, GARCH to forecast
volatility of financial time series

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CLO4: Apply multivariate time series models on financial data
Day 4:
Session 7: Understanding concept of multivariate time series and its implications for financial
markets
Session 8: Applying multivariate models VAR, VECM

(Each session will be of 3.5 hours and last two hours will be for presentation by students)

Recommended Books

• Basic Econometrics, Damodar N. Gujrati and Dawn C. Porter, 5th ed, McGraw Hill.
• Introductory Econometrics for Finance, Chris Brooks, 3rd ed., Cambridge University Press.

Pedagogy A mix of pedagogy of lecture and practical sessions will be adopted. Conceptual inputs
will be given through short lectures but major emphasis will be on technical skills and practice.
The extent & quality of learning will depend on the quality & depth of discussion in the class. This
in turn depends on the preparation and thinking that has been put in by the participants for each
session. Readings, assignments, cases and problems, whenever given, are a means of focusing on
central issues, concepts or knowledge.

Evaluation & Assessment

Grade for this course will be based on a comprehensive End-Semester Test, Mid-Semester test and
an Internal Assessment. The following will be used in evaluating and assessing the final grade:
CLOs-wise Evaluation and Assessment Summary

CLOs and Overall 1 2 3 4

Marks (100) 25 25 25 25

The above evaluation and assessment are further divided into following components.

Mid-Semester Test (20 marks): The duration of this exam is one hour. The questions will be
asked from CLO1 and CLO 2 of syllabus. It would cover the following CLOs.
CLO 1 2 3 4

Marks (20) 10 10

End-Semester Test (40 marks): The duration of this exam is two hours. The questions will be
asked from entire syllabus. It would cover the following CLOs.
CLO 1 2 3 4

Marks (40) 5 5 15 15

Internal Assessment (40 marks):

The internal assessment will be based on project which will have components with each CLO
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 CLO 1 2 3 4

Project Report and 10 10 10 10

Presentation

Details of Project:
The students will be grouped in a group of maximum 4 students. Each group need to prepare
project report based on following:
1. You need to select two NSE-listed companies from two different sectors. Collect daily,
weekly, and monthly stock market prices of these companies. Present stylized facts for
these two companies.
2. Apply linear or non-linear models and compare forecasts of various models.
3. Apply appropriate volatility estimation models and compare forecasts of various models.
4. Collect data on selected macroeconomic indicators and forecast long run relationship
between stock prices (of your company) with other economic indicators
Expectations from students

For the successful completion of course, student is generally expected to follow,

• For each hour of teaching in classroom, student is expected to read 3 hours in person. This
includes study material, case study, practice questions and project/assignment.
• Since many components of assessment are group based so each individual is expected to
contribute in project. Separate marks will be allocated to each individual for group
assignment as well.
• Student is expected to participate in class room discussion.
• Strict no plagiarism policy will be followed in all submissions.
• Student is expected to submit assignments on-time. Late submissions will not be accepted.

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