Lee2020 Article FinancialEconometricsMathemati

Review of Quantitative Finance and Accounting (2020) 54:1529–1578
https://doi.org/10.1007/s11156-020-00883-z
REVIEW
Financial econometrics, mathematics, statistics, and financial

technology: an overall view
Cheng Few Lee1
Published online: 22 April 2020

© Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract
Based upon my experience in research, teaching, writing textbooks, and editing handbooks
and journals, this review paper discusses how financial econometrics, mathematics, sta-
tistics, and financial technology can be used in research and teaching for students major-
ing in quantitative finance. A major portion of this paper discusses essential content of
Lee and Lee (Handbook of financial econometrics, mathematics, statistics, and machine
learning, World Scientific, Singapore, 2020). Then Lee (From east to west: memoirs of a
finance professor on academia, practice, and policy, World Scientific, Singapore, 2017),
Lee et al. (Financial econometrics, mathematics and statistics, Springer, New York, 2019a;
Machine learning for predicting default of credit card holders and success of kickstarters.
Working paper, 2019b), and Lee and Lee (Handbook of financial econometrics and statis-
tics, Springer, New York, 2015) are used to enhance the content of this paper. In addition,
important and relevant papers, which have been published in different journals are also
used to support the issues discussed in this paper. I have found the applications of financial
econometrics, mathematics, statistics, and technology have improved drastically over the
last five decades. Therefore, both practitioners and academicians need to update their skills
in this area to compete in both financial market and academic research.
Keywords Financial econometrics · Financial mathematics · Financial statistics · Financial

technology
JEL Classification G1 · G2 · G3 · G4
This paper was delivered as a keynote speech at the 27th PBFEAM Conference in June 2019 at
National Taiwan University. I appreciate the comments from the audience at the conference. In
addition, the useful comments from Professors J. R. Chang, Cathy Y. H. Chen, Jack Francis, Wolfgang
Karl Hardle, Nathan Joseph, Fu-Lai Lin, Xiaoxiao Tang, and Hai-Chin Yu are also appreciated.
* Cheng Few Lee

cflee@business.rutgers.edu; cflee@mail.nctu.edu.tw
1
Rutgers University, New Brunswick, USA
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Vol.:(0123456789)
C. F. Lee
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1 Introduction1
Financial econometrics, mathematics, statistics, and machine learning have been widely
used in empirical research in both finance and accounting. Specifically, econometric
methods are important tools for asset pricing, corporate finance, options and futures,
and conducting financial accounting research. Econometric methods used in finance and
accounting related research include single equation multiple regression, simultaneous
regression, panel data analysis, time series analysis, spectral analysis, non-parametric
analysis, semi-parametric analysis, GMM analysis, and other methods.
In both theory and methodology, we need to rely upon mathematics, which includes
linear algebra, geometry, differential equations, Stochastic differential equation (Ito cal-
culus), optimization, constrained optimization, and others. These forms of mathematics
have been used to derive capital market line, security market line (capital asset pricing
model), option pricing model, portfolio analysis, and others.
Statistical distributions, such as normal distribution, stable distribution, and log nor-
mal distribution, have been used in research related to portfolio theory and risk manage-
ment. The particular distributional assumption of the underlying data is an important
indicator of the type of estimation to use. For some estimation methods, such as the
GARCH family, the underlying distributional assumption needs to be specified before
estimation. Binomial distribution log normal distribution, non-central Chi square dis-
tribution, Poisson distribution, and others have been used in studies related to option
and futures. Moreover, risk management research has used Copula distribution and
other distributions. Both finance research and applications need financial technology
for empirical analyses. These technologies include Excel, Excel VBA, SAS program,
MINITAB, MATLAB, Python, R, and others. Simulations methods are also frequently
used in financial empirical studies.
The review paper is organized as follows. Section 1 introduces the topics to be covered
in the paper. Section 2 discusses financial econometrics. In Sect. 2, there are seven sub-
sections. Each subsection briefly discusses a specific statistical method, including single
equation regression methods, simultaneous equation models, panel data analysis, alterna-
tive methods to deal with measurement error, time-series analysis, and spectral analysis.
In the following section, Sect. 3, financial mathematics is a focus. Section 4 encompasses
five subsections and discusses financial statistics. The subsections in Sect. 4 are as fol-
lows: statistical distributions, principle components and factor analysis, non-parametric
and semi-parametric analyses, cluster analysis, and Fourier transformation method. Sec-
tion 5 emphasizes on financial technology and machine learning. In this section there are
three subsections. The first subsection goes over the classification of machine learning. The
second subsection discusses the applications of machine learning, and the third subsection
talks about financial technology and other computer science tools used for finance research.
Section 6 discusses applications of financial econometrics, mathematics, statistics, and
technology and comprises of nine subsections including asset pricing, corporate finance,
financial institution, investment and portfolio management, option pricing model, futures
and hedging, mutual fund, credit risk modeling, and other applications. Section 7 provides
an overall discussion of my experience in writing textbooks and editing handbooks and
1
The majority of this paper is based upon Lee et al. (2010, 2013a, b, c, d), Lee and Lee (2013, 2015, 2017,
2020, and my research papers. In addition, important papers from other scholars are also cited.
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Financial econometrics, mathematics, statistics, and financial… 1531
journals. It also gives an overview of Lee and Lee (2020) and organizes a subsection for
articulating the potential applications. Section 8 gives an overview of my innovated appli-
cations of financial econometrics, statistics, mathematics, and technology in finance and
accounting research. Section 9 concludes the paper and gives some concluding remarks. In
“Appendix 1” shows the table of contents and keywords for the handbook entitled, “Finan-
cial Econometrics, Statistics, And Machine Learning.” In “Appendix 2” presents the table
of contents for the book entitled, “Financial Econometrics, Mathematics, And Statistics.”
In “Appendix 3” outlines the table of contents for the handbook entitled, “Handbook Of
Financial Econometrics And Statistics.” In “Appendix 4” shows the table of contents for
“Essentials of Excel, Excel VBA, SAS and Minitab for Statistical and Financial Analysis.”
2 Financial econometrics2
In this section, we first discuss the important issue related to single equation regression
estimation, then we discuss alternative simultaneous equation models. In addition, this
section discuses panel data analysis, alternative method to deal with measurement error,
spectral analysis, and nonlinear model. Finally, we discuss important models of time series
analysis.
2.1 Important issues related to single equation estimations
Heteroscedasticity, specification error, measurement error, skewness and kurtosis effect,

nonlinear regression and Box–Cox transformation, structural change, generalize fluctua-
tion, probit and logit regression, Poisson regression, and fuzzy regression are important
issues related to single equation regression estimation method. These issues are briefly dis-
cussed below.
2.1.1 Heteroskedasticity
White (1980) and Newey and West (1987) authored two important papers discussing how
the heteroskedasticity test can be performed. Specifically, Newey and West’s (1987) paper
discusses heteroskedasticity when there are serial correlations. There is also the issue of
nonnormality and autocorrelation related to this test.
2.1.2 Specification error
Specification error occurs when there is a missing variable in a regression analysis. We

can refer to the papers by Thursby (1985), Fok et al. (1996), Cheng and Lee (1986), and
Maddala et al. (1996) for testing the existence of specification error.
2
The overall information of financial econometrics can be found in the book by Lee et al. (2019a, b). The
table of contents for this book can be found in Appendix B. In addition, information from Lee and Lee
(2020), Lee and Lee (2015), Lee et al. (2010), Lee and Lee (2013), and other academic research papers is
also used.
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2.1.3 Measurement errors and asset pricing tests
Measurement error problem involves the existence of imprecise independent variables in

a regression analysis. Lee and Jen (1978a, b), Kim (1995, 2010), Miller and Modigliani
(1966) and Chen et al. (2015a, b) have explored how measurement error methods can be
applied to finance research. Chen et al. (2015a, b) have discussed alternative errors in vari-
able estimation methods and their application in finance research. In his dissertation, enti-
tled “Errors-in-Variables Estimation Procedures with Applications to a Capital Asset Pric-
ing Model,” Lee (1973) extensively studied alternative methods dealing with measurement
error problems in regression. He also used individual security data instead of portfolio data
to test asset pricing. Researchers have realized that portfolio data is not suitable to test asset
pricing model; therefore, researchers use individual firm’s rates of return to test asset pric-
ing. These research papers include Kim (1995), Jegadeesh et al. (2019)and others. In sum,
it is now clear that the traditional method of using portfolio data to test asset pricing is no
longer suitable.
For the last 50 years empirical research in capital asset pricing has been done by a lot
of researchers. Besides the errors-in-variables problem previously mentioned, Harvey et al.
(2016) and McLean and Pontiff (2016) used adjusted-t in multiple testing and concluded
that the significant criteria should use t = 3 instead of t = 2.
2.1.4 Skewness and kurtosis effect
Both skewness and kurtosis are two important measurement variables to prepare stock
variation analysis. Lee (1976a, b, c), Sears and John Wei (1988), and Lee and Wu (1985)
discuss the skewness and kurtosis issue in asset pricing. Fundamentally, the presence of
skewness and (excess) kurtosis imply non-normally distributed returns/data. Their pres-
ence in the data affect estimation efficiency even if the estimates are still unbiased (BLUE).
2.1.5 Nonlinear regression and Box–Cox transformation
Nonlinear regression and Box–Cox transformation are important tools for finance, account-
ing, and urban economic research. Lee (1977a, b), Lee et al. (1990a, b), Frecka and Lee
(1983), and Liu (2006) have discussed how nonlinear regression and Box–Cox transfor-
mation techniques can be used to improve the specification of finance and accounting
research. In addition, Kau and Lee (1976a, b, c), and Kau et al. (1986) have explored how
Box–Cox transformation can be used to conduct the empirical study of urban structure.
2.1.6 Structural change
• Yang (1989), Lee et al. (2011), and Lee et al. (2011) have discussed how the struc-
tural change models can be used to improve the empirical study of dividend policy and
the issuance of new equity. Chow (1960) have proposed a dummy variable approach to
examine the existence of structure change for regression analysis. Zeileis et al. (2002)
have developed software programs to perform the Chow test and other structural change
models which has been frequently used in finance and economic research. In addition,
Hansen (1996, 1997, 1999, 2000a, 2000b) has explored the issue of threshold regres-
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sions and their applications in detecting structure change for regression. Perron (1989)
shows how structural breaks can be tested for in the presence of a unit root. Perron
(1997) proposes an extension of the Perron (1989) technique but using a sequential pro-
cedure that estimates the test statistic allowing for a break at any point during the sam-
ple to be determined by the data
2.1.7 Generalize fluctuation
Kuan and Hornik (1995) have discussed how the generalized fluctuation test can be used
to perform structural change to regression. In addition, Lee et al. (2011) have used both
theory and econometric method to test the structural change of a cross sectional change for
dividend policy research.
2.1.8 Probit and logit regression
Probit and logit regressions are frequently used in credit risk analysis and tests for mar-
ket crashes (Barth et al. 2004; Beck et al. 2006; Houston et al. 2010; Frankel and Sarave-
los 2012). Ohlson (1980) used the accounting ratio and macroeconomic data credit risk
analysis. Shumway (2001) have used accounting ratios and stock rate returns for credit
risk analysis in terms of probit and logit regression techniques. Most recently, Hwang
et al. (2008, 2009) and Cheng et al. (2010) have discussed probit and logit regression for
credit risk analysis by introducing nonparametric and semiparametric techniques into
this kind of regression analysis.
2.1.9 Poisson regression
Lee and Lee (2014) have discussed how Poisson regression can be performed regard-
less of the relationship between multiple directorships, corporate ownership, and firm
performance.
2.1.10 Fuzzy regression
Shapiro (2005), Angrist and Lavy (1999), and Van Der Klaauw (2002) have discussed
how Fuzzy regression can be performed. This method has potential to be used in finance
accounting and research.
2.1.11 Path analysis
Path analysis is a straightforward extension of multiple regression. Its aim is to pro-

vide estimates of the magnitude and significance of hypothesized causal connections
between sets of variables. The application of path analysis in finance and accounting
can be found in Kozberg (2004) and Riahi-Belkaoui and Pavlik (1993).
Besides the above-mentioned methodologies, in this handbook we also present other
new econometric methodologies such as quantile co-integration (Chapter 92), threshold
regression (Chapter 22), Kalman filter (Chapter 53), and filtering methods (Chapter 64).
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2.2 Simultaneous equation models
Besides single equation regression models, we can estimate simultaneous equation

models. There are two-stage least squares estimation (2SLS) method, seemly unrelated
regression (SUR) method, three-stage least square estimation (3SLS) method, disequi-
librium estimation method, and generalized method of moments.
2.2.1 Two‑stage least squares estimation (2SLS) method
Miller and Modigliani (1966) have used 2SLS to study cost of capital for utility indus-
try. Lee (1976d) has applied 2SLS to started market model. Moreover, Chen et al.
(2007a, b) have discussed 2SLS method for investigating corporate governance.
2.2.2 Seemly unrelated regression (SUR) method
Seemly unrelated regression has frequently been used in economic and financial
research. Lee and Zumwalt (1981) have discussed how the seemly unrelated regres-
sion method can be applied in asset pricing determination. Spies (1974) and de Leeuw
(1965) have proposed a stacking technique to replace either SUR or constrained SUR.
2.2.3 Three‑stage least squares estimation (3SLS) method
Chen et al. (2007a, b) have discussed how the three-stage least squares estimation
method can be applied in corporate governance research. Lee et al. (2016a, b, c have
discussed applications of simultaneous equations in finance research.
2.2.4 Disequilibrium estimation method
Fair and Jaffee (1972), Amemiya (1974), Quandt (1988), Mayer (1989), and Martin
(1990) have discussed how alternative disequilibrium estimation method can be per-
formed. Sealey (1979), Tsai (2005), and Lee et al. (2011) have discussed how the dis-
equilibrium estimation method can be applied in asset pricing test and banking manage-
ment analysis.
2.2.5 Generalized method of moments
Hansen (1982) and Hamilton (1994, chapter 14) have discussed how generalized method
of moments method can be performed. Chen et al. (2007a, b) have used the two-stage
least squares estimation (2SLS), three-stage squares method and GMM method to inves-
tigate corporate governance.
2.3 Panel data analysis
There are several important issues related to panel data analysis, such as fixed effect
model, random effect model, and clustering effect model. Three well-known textbooks
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by Wooldridge (2002), Baltagi (2008) and Hsiao (2014) have discussed the applications
of panel data in finance, economics, and accounting research.
2.3.1 Fixed effect model
Chang and Lee (1977) and Lee et al. (2011) have discussed the role of the fixed effect
model in panel data analysis of dividend research.
2.3.2 Random effect model
Arellano and Bover (1995) have explored the random effect model and its role in panel
data analysis. Chang and Lee (1977) have applied both fixed effect and random effect
model to investigating the relationship between price per share, dividend per share, and
retained earnings per share.
2.3.3 Clustering effect model
Petersen (2009), Cameron et al. (2011), and Thompson (2011) review the clustering
effect model and its impact on panel data analysis.
2.4 Alternative methods to deal with measurement error
LISREL model, multi-factor and multi-indicator (MIMIC) model, partial least square
method, and grouping method can be used to deal with measurement error problem.
2.4.1 LISREL model
Titman and Wessels (1988), Chang (1999), Chang et al. (2009), Yang et al. (2010) have
described the LISREL model and its way to resolve the measurement error problems of
finance research.
2.4.2 Multi‑factor and multi‑indicator (MIMIC) model
Wei (1984) and Chang et al. (2009) have applied in the multi-factor and multi-indicator
(MIMIC) model in capital structure and asset pricing research.
2.4.3 Partial least square method
Lambert and Larcker (1987), Ittner et al. (1997), and Core (2000) have applied the
partial least square method to deal with measurement error problems in accounting
research.
2.4.4 Grouping method
Black et al. (1972), Blume and Friend (1973), Fama and MacBeth (1973), Lee (1973,
1977b), Chen (2011), and Lee et al. (2011) analyze grouping method and its way to deal
with measurement error problem in capital asset pricing tests.
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C. F. Lee
1536
In addition, there are other errors in variables methods, such as classical method,
instrumental variable method, mathematical programming method, maximum likeli-
hood method, GMM method, and Bayesian statistic method. Chen et al. (2015a, b) have
discussed above-mentioned methods in detail.
2.5 Nonlinear model
Besides linear models discussed in previous sections, nonlinear models have become more
important in finance research. For example, nonlinear model in asset pricing has been dis-
cussed in Lee (1976d, e, f). In addition, Chen et al. (2004) have discussed alternative non-
linear models for corporate finance research. These nonlinear models include the piecewise
regression model, models with slope dummies, and quadratic and higher order polynomial
regression models, and switching regression models for both single equation and simulta-
neous equation models.”
2.6 Spectral analysis
Anderson (1994), Chacko and Viceira (2003), and Heston (1993) have discussed how spec-
tral analysis can be performed. Heston (1993) and Bakshi et al. (1997) have applied spec-
tral analysis in the evaluation of option pricing.
2.7 Time‑series analysis
There are various important models in time series analysis, such as autoregressive inte-
grated moving average (ARIMA) model, autoregressive conditional heteroscedastic-
ity (ARCH) model, generalized autoregressive conditional heteroscedasticity (GARCH)
model, fractional GARCH, and combined forecasting model. Anderson (1994) and Hamil-
ton (1994) have discussed the issues related to time series analysis.
Myers (1991) discloses ARIMA’s role in time-series analysis: Lien and Shrestha (2007)
discuss ARCH and its impact on time-series analysis. Lien (2010) discusses GARCH
and its role in time-series analysis. Leon and Vaello-Sebastia (2009) further research into
GARCH and its role in time-series in a model called Fractional GARCH.
Granger and Newbold (1973, 1974), Granger and Ramanathan (1984) have theoretically
developed combined forecasting methods. Lee et al. (1986) have applied combined fore-
casting methods to forecast market beta and accounting beta. Lee and Cummins (1998)
have shown how to use the combined forecasting methods to perform cost of capital
estimates.
As noted in “Appendix 1”, Chapters 2, 3, 4, 5, 6, 10, 11, 22, 23, 25, 26, 28, 29, 32, 37,
48, 55, 56, 60, 62, 63, 70, 75, 79, 90, 92, 94, 95, 98, 99, 100, 107, 108, 111, 112, 113, 116,
123, 124, 125, 129, and 131 from “Financial Econometrics, Statistics, Technology And
Machine Learning” discuss how financial econometrics can be used in finance accounting
research.
As noted in “Appendix 2”, Parts I and II discuss how financial econometrics and time-
series analysis can be used in finance accounting and research. Some chapters of Lee et al.
(2016a, b, c, see “Appendix 4”), Lee and Lee (2015, see “Appendix 3”), Lee and Lee
(2013), and Lee et al. (2010) discussed applications of financial econometrics.
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3 Financial mathematics3
Mathematics used in finance research includes linear algebra, calculus, Ito calculus, and
fuzzy set mathematics. For portfolio analysis and CAPM derivation we need to use linear
algebra, calculus, constrained optimization, and utility theory. In option pricing model der-
ivation, we need to use calculus, Ito calculus, and statistical distributions as well as related
theories and propositions.
Black and Scholes (1973) and Merton (1973) have simultaneously derived the option
pricing model by Ito calculus. The textbooks by Hull (2018) and Lee et al. (2013a, b, c,
d) used either regular calculus or Ito calculus to discuss the derivation of option pricing
model in further detail. Lee et al. (2016a, b, c has discussed how to use binomial distribu-
tion, traditional calculus, and Ito calculus to derive the option pricing model.
As noted in “Appendix 1”, Chapters 24, 27, 34, 40, 41, 49, 54, 86, 96, 97, 102, 104, 106,
109, 110, and 128 from “Financial Econometrics, Statistics, Technology And Machine
Learning” discuss how financial mathematics can be used in finance research.
As noted in “Appendix 2”, Parts III and IV discuss how financial mathematics can be
used in finance research. Some chapters of Lee et al. (2016a, b, c, see “Appendix 4”), Lee
and Lee (2015, see “Appendix 3”), Lee and Lee (2013), and Lee et al. (2010) discussed the
applications of financial mathematics.
4 Financial statistics4
In this section, we discuss important topics of financial statistics such as statistical distribu-
tion, principle components and factor analysis, non-parametric and semi-parametric analy-
ses, cluster analysis, and Fourier transformation method.
4.1 Statistical distributions
Cox et al. (1979) and Rendleman and Barter (1979) have used binomial, normal, and log-
normal distributions to develop an option pricing model. Some researchers provide studies
on these different statistical distributions. Black and Sholes (1973) have used lognormal
distributions to derive the option pricing model. Aitchison and Brown’s (1973) book is the
best reference for studying lognormal distribution. Schroder (1989) has derived the option
pricing model in terms of non-central Chi square distribution.
In addition, Fama (1971) has used stable distributions to investigate the distribution
of stock rate of returns. Wu et al. (2006) used phase distribution and phase correlation to
study the distribution of financial time series.
3
Some information for financial mathematics can be found in the book by Lee et al. (2019a, b). The table
of contents for this book can be found in Appendix B. In addition, information from Lee and Lee (2020),
Lee and Lee (2015), Lee et al. (2010), Lee and Lee (2013), and other academic research papers is also used.
4
The overall information of financial statistics can be found in the book by Lee et al. (2019a, b). The table
of contents for this book can be found in Appendix B. In addition, information from Lee and Lee (2020),
Lee and Lee (2015), Lee et al. (2010), Lee and Lee (2013), Lee et al. (2013a, b, c, d), and other academic
research papers is also used.
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4.2 Principle components and factor analysis
Anderson’s (2003) book entitled “An Introduction to Multivariate Statistical Analysis” has
discussed principle components and factor analysis in details. Pinches and Mingo (1973),
Chen and Shimerda (1981), and Kao and Lee (2012) have discussed how principle compo-
nents and factor analysis can be used in finance and accounting research.
4.3 Non‑parametric and semi‑parametric analyses
Hutchinson et al. (1994) and Ait-Sahalia and Lo (2000) have discussed how non-paramet-
ric can be used in risk management and the evaluation of financial derivatives. Hwang
et al. (2007), Hwang et al. (2010), and Cheng et al. (2010) have used semi-parametric to
conduct credit risk analysis.
4.4 Cluster analysis
The detailed procedures to discuss how cluster analysis can be used to find groups in data
can be found in the textbook by Kaufman and Rousseeuw (1990). In addition, Brown and
Goetzmann (1997) have applied cluster analysis in mutual fund research.
4.5 Fourier transformation method
Carr and Madan (1999) have used the fast Fourier transformation method to evaluate
option pricing.
As noted in “Appendix 1”, Chapters 7, 8, 16, 19, 33, 35, 36, 38, 39, 52, 57, 58, 59, 61,
64, 65, 68, 69, 72, 73, 74, 77, 78, 85, 93, 113, 114, 115, 118, and 120 from “Financial
Econometrics, Statistics, Technology And Machine Learning” discuss how financial statis-
tics can be used in finance research.
As noted in “Appendix 2”, Parts III and IV discuss how financial statistics can be used
in finance research. Some chapters of Lee et al. (2016a, b, c, see “Appendix 4”), Lee and
Lee (2015, see “Appendix 3”), Lee et al. (2013a, b, c, d, and Lee et al. (2010) discussed
applications of financial statistics.
5 Machine learning and financial technology
In this section, we will discuss the classification of machine learning and its applications.
We also will discuss financial technology and other computer science tools used for finance
research.
5.1 Classification of machine learning
Machine learning is a method of data analysis that automates analytical model building.
It is a branch of artificial intelligence based on the idea that systems can learn from data,
identify patterns and make decisions with minimal human intervention. Machine learning
is one of the most important tools for financial technology. Machine learning is particularly
useful when the usual linearity assumption does not hold for the data. Under equilibrium
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conditions and when the standard assumptions of normality and linearity hold, machine
learning and parametric methods, such as OLS, tend to generate similar results. Since
machine learning methods are essentially search algorithms, there is the usual problem of
finding global minima that minimizes some function. Machine learning can generally be
classified as: (1) supervised learning, (2) unsupervised learning, and (3) others (reinforce-
ment learning, semi-supervised, and active learning). Supervised learning includes (1)
regression (lasso, ridge, logistic, loess, KNN, and spline) and (2) classification (SVM, ran-
dom forest, and deep learning). Unsupervised learning includes (1) clustering (K-means,
hierarchical tree clustering) and (2) factor analysis (principle component analysis, etc.). K
nearest neighbors (KNN) is a simple algorithm that stores all available cases and classifies
new cases based on a similarity measure (e.g., distance functions). KNN has been used in
statistical estimation and pattern recognition already in the data.
The book by de Mello and Ponti (2018) discussed the overall topic of machine learning.
In addition, the relationship between statistics and machine learning can be found in Bzdok
et al. (2018).
5.2 Machine learning applications
The major machine learning applications in financial technology are: (1) investment pre-
dictions/quantitative investment: high-frequency trading, portfolio management, (2) risk
management: credit risk, (3) payment default of credit card holders and loan borrowers, (4)
fraud prevention, and (5) marketing.
More specifically, machine learning applications in finance can be classified into cur-
rent applications and the future value of machine learning in finance. The current appli-
cations include: (1) Portfolio management (Betterment, Wealthfront, Schwab Intelligent
Portfolios), (2) Algorithm Trading, automated trading systems, high-frequency trading
(Renaissance Technologies, Walnut Algorithms), (3) Loan/insurance underwriting (Com-
pare.com), (4) Credit risk management: default risk of credit card holder, and (5) Fraud
detection: “perfect storm” for data security risk (Kount, APEX Analytics). There are
several benefits of machine learning in finance. They are (1) Customer service: chat bots
and conversational interfaces (Kasisto), (2) Security 2.0: facial recognition, voice recog-
nition, or other biometric data (FaceFirst, Cognitec), (3) Sentiment/news analysis (Hear-
say Social), and (4) sales/recommendations of financial products. Most recently, Nasekin
and Chen (2019) have used deep learning technology to study cryptocurrency sentiment
construction. Applications of machine learning in credit risk analysis will be discussed in
Sect. 6.8. The papers by Teng and Lee (2019) and Sun and Vasarhelyi (2018) have shown
how machine learning can be used to forecast credit card default. (Both chapters of the
handbook were edited by Lee and Lee (2020).
In statistics and machine learning, lasso (least absolute shrinkage and selection oper-
ator; also Lasso or LASSO) is a regression analysis method that performs both variable
selection and regularization in order to enhance the prediction accuracy and interpretability
of the statistical model it produces.
Chen et al. (2019a, b) proposes a Tail Event driven Network Quantile Regression
(TENQR) model which addresses the interdependence, dynamics, and riskiness of financial
institutions. More precisely, their framework captures the risk propagation and dynamics
by a means of a panel quantile autoregression involving network effects that are quantified
through a time-varying adjacency matrix. To reflect the risk content in stress situations, the
construction of the adjacency matrix is suggested to include tail events.
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C. F. Lee
1540
Chinco et al. (2019), in a recent paper entitled, “Sparse Signals in the Cross-Section
of Returns,” applies the Least Absolute Shrinkage and Selection Operator (LASSO)
to make rolling 1-min-ahead return forecasts using the entire cross-section of lagged
returns as candidate predictors. The LASSO increases both out-of-sample fit and fore-
cast-implied Sharpe ratios. This out-of-sample success comes from identifying key
predictors that are unexpected, short-lived, and sparse. The LASSO is prevalent as it
encompasses the variable selection and regularization in order to leverage the predic-
tion ability and overfitting. The selected predictors are in accordance with economically
meaningful events and convey news about fundamentals.
5.3 Financial technology and other computer science tools used for finance

research
Financial technology (FinTech) can generally be classified as BankingTech, PayTech,

RegTech, WealthTech, LendTech, and InsurTech.
The other computer science tools used for FinTech include customer service, digital
assistants, and network security. In finance research and applications, we need to use a
lot of computer programming techniques such as Excel, SAS, MINITAB, R, machine
learning, Python, Jupyter, and support vector machine-based methodology. Monte Carlo
simulation techniques are frequently needed for financial research and practical applica-
tions. In addition, data mining and big data analysis are also important financial technol-
ogy tools. Time-series bootstrapping simulation can also be used in financial analysis.
For example, Bradley and Mangasarian (2000) used linear support vector machine
optimization to discriminate massive data, Meyer et al. (2012) used bootstrapping simu-
lation to measure the skill in investors’ investment performance, Bzdok et al. (2018)
discussed the relationship between statistics and machine learning, and Gu et al. (2019)
used the machine learning method to perform capital asset pricing research. Finally, the
book written by Mitchell (1997) explored machine learning methodology in detail.
As noted in “Appendix 1”, Chapters 14, 20, 21, 31, 39, 43, 44, 46, 55, 56, 84, 101,
112, 117, 119, and 127 from “Financial Econometrics, Statistics, Technology And
Machine Learning” discuss how financial technology and machine learning can be
used in finance research. In addition, Lee and Lee (2015, see “Appendix 3”) and Lee
et al. (2016a, b, c, see “Appendix 4”) have some chapters that discuss the issue of finan-
cial technology. Lee et al. (2016a, b, c) have shown how Excel, Excel VBA, SAS, and
Minitab programs can be used to perform statistical and financial analysis.
6 Applications of financial econometrics, mathematics, statistics,

and technology
In this section, we will briefly discuss how different methodologies of financial econo-
metrics, mathematics, statistics, and machine learning can be applied to the topics of
finance and accounting research. Topics include asset pricing, corporate finance, invest-
ment and portfolio research, option pricing, futures and hedging, mutual fund, credit
risk modeling, and other applications.
13
6.1 Asset pricing
Methodologies used in asset pricing research include heteroskedasticity, specification error,

measurement error, skewness and kurtosis effect, nonlinear regression and Box–Cox trans-
formation, structural change, two-stage least squares estimation (2SLS) method, seemingly
unrelated regression (SUR) method, three-stage least squares estimation (3SLS) method,
disequilibrium estimation method, fixed effect model, random effect model, clustering
effect model of panel data analysis, grouping method, ARIMA, ARCH, GARCH, Frac-
tional GARCH, and Wishart distribution.
Gu et al. (2019) performed a comparative analysis of machine learning methods for the
canonical problem of empirical asset pricing: measuring asset risk premia. They demon-
strated large economic gains to investors using machine learning forecasts, in some cases
doubling the performance of leading regression-based strategies from the literature. They
identified the best performing methods (trees and neural networks) and trace their predic-
tive gains to allowance of nonlinear predictor interactions that are missed by other meth-
ods. All methods agree on the same set of dominant predictive signals which includes
variations on momentum, liquidity, and volatility. Improved risk premium measurement
through machine learning simplifies the investigation into economic mechanisms of asset
pricing and highlights the value of machine learning in financial innovation.
Kadan and Tang (2020) use a new identity introduced by Martin (2017) to establish a
forward-looking lower bound on the expected returns of individual stocks, calculated by
aggregating the prices of options written on the stock of interest. They used nonparamet-
ric methods to estimate the lower bounds for S&P 500 constituents and study their cross-
sectional properties. Their results provided support for the classic CAPM, as beta seems
like an important determinant of expected returns. The lower bound they established also
provided an economically meaningful signal for future realized returns.
6.2 Corporate finance
Methodologies used in corporate finance research include heteroskedasticity, specification

error, measurement error, skewness and kurtosis effect, nonlinear regression and Box–Cox
transformation, structural change, probit and logit regression for credit risk analysis, Pois-
son regression, fuzzy regression, two-stage least squares estimation (2SLS) method, seem-
ingly unrelated regression (SUR) method, three-stage least squares estimation (3SLS)
method, fixed effect model, random effect model, clustering effect model of panel data
analysis, and GMM analysis.
6.3 Financial institution
Methodologies used in financial institution research include heteroskedasticity, speci-

fication error, measurement error, skewness and kurtosis effect, nonlinear regression
and Box–Cox transformation, structural change, probit and logit regression for credit
risk analysis, Poisson regression, fuzzy regression, two-stage least squares estimation
(2SLS) method, seemingly unrelated regression (SUR) method, three-stage least squares
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C. F. Lee
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estimation (3SLS) method, disequilibrium estimation method, fixed effect model, random
effect model, clustering effect model of panel data analysis, and semi-parametric analysis.
6.4 Investment and portfolio management
Methodologies used in investment and portfolio management include heteroskedasticity,

specification error, measurement error, skewness and kurtosis effect, nonlinear regression
and Box–Cox transformation, structural change, probit and logit regression for credit risk
analysis, Poisson regression, and fuzzy regression. Gu et al. (2019) have used financial
machine learning techniques to study capital asset pricing.
6.5 Option pricing model
Methodologies used in option pricing research include ARIMA, ARCH, GARCH, frac-
tional GARCH, spectral analysis, binomial distribution, Poisson distribution, normal distri-
bution, lognormal distribution, Chi square distribution, non-central Chi square distribution,
and non-parametric analysis.
6.6 Futures and hedging
Methodologies used in future and hedging research include heteroskedasticity, specifica-

tion error, measurement error, skewness and kurtosis effect, nonlinear regression and
Box–Cox transformation, structural change, probit and logit regression for credit risk anal-
ysis, Poisson regression, and fuzzy regression.
6.7 Mutual fund
Methodologies used in mutual fund research include heteroskedasticity, specification error,

formation, structural change, probit and logit regression for credit risk analysis, Poisson
regression, fuzzy regression, and cluster analysis.
6.8 Credit risk modeling
6.8.1 Traditional approach
Methodologies used in credit risk modeling include heteroskedasticity, specification error,

formation, structural change, two-stage least squares estimation (2SLS) method, seemingly
unrelated regression (SUR) method, three-stage least squares estimation (3SLS) method,
disequilibrium estimation method, fixed effect model, random effect model, cluster-
ing effect model of panel data analysis, ARIMA, ARCH, GARCH, and semi-parametric
analysis.
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6.8.2 Machine learning approach
Recently, machine learning techniques have been extensively used in credit risk analysis.
Butaru et al. (2016) have used machine learning techniques to study risk and risk manage-
ment. Atiya (2001) used neural networks for predicting bankruptcy for credit risk. Bahram-
mirzaee (2010) examined artificial intelligence applications in finance such as: artificial
neural networks, expert system and hybrid intelligent systems. Crook et al. (2007) explored
developments in consumer credit risk assessment. Demyanyk and Hasan (2010) studied
prediction methods for financial crises and bank failures. Garrido et al. (2018) researched
profit measure for binary classification model. Keerthi and Lin (2003) studied asymp-
totic behaviors of support vector machines with Gaussian kernel. Kingma and Ba (2014)
explored a method for stochastic optimization. Kumar and Ravi (2007) studied bankruptcy
in banks and firms using statistical and intelligent techniques. Thomas (2000) studied
forecasting the financial risk of lending to consumers. Verbraken et al. (2014) used profit-
based classification measures to develop consumer credit scoring models. Zopounidis et al.
(1997) have surveyed the use of knowledge-based decision support systems in financial
management. Finally, Lee et al. (2019a, b) have used machine learning techniques for pre-
dicting the default of credit card holders and success of Kickstarters.
6.9 Other applications
Financial econometrics is also an important tool for conducting research in trading cost
(transaction cost) modeling, hedge fund research, microstructure, earnings announcement,
real option research, financial accounting, managerial accounting, auditing, and term struc-
ture modeling.
Zhang et al. (2016) analyzes the distillation news flow into the analysis of stock reac-
tions. In their paper they focus on three stock reaction indicators: range-based measure of
volatility, detrended log trading volume, and log returns. Using two general-purpose lexica
(BL and MPQA) and a lexicon specifically designed for financial applications (LM), they
found significant incremental information conveyed by the distilled news flow. An asym-
metric response (bad vs. good news), attention-specific and sector-specific response of
stock reactions are diagnosed.
In the next section, we will give an overall discussion of the “Handbook of Financial
Econometrics, Mathematics, Statistics, and Machine Learning.”
7 Overall discussion of my experience in writing textbooks and editing

handbooks and journals
In previous sections, we have discussed financial econometrics, mathematics, statistics,

machine learning, and technology. In addition, in Sect. 6 we discussed applications of
financial econometrics, mathematics, statistics, and technology in finance and accounting
research. In this section, we will briefly discuss my experience in writing textbooks, edit-
ing handbooks and journals, then we will give an overall view of Lee and Lee’s (2020)
handbook in terms of applications.
In 1985, I published the first edition of Financial Analysis, Planning, and Forecast-
ing. To my best knowledge, this is one of the first quantitative type of finance textbooks,
13
C. F. Lee
1544
which applies econometrics, statistics, and Excel to finance. This book proposed an
active approach to learning finance. The third edition of this book was published in 2017
with John Lee. In 1993, I published Statistics for Business and Financial Economics. To
my best knowledge, this book is one of the first books that shows how statistics can be
used to analyze finance, accounting, and economics data. The third edition of this book
was published in 2013 with John Lee and Alice C. Lee. In 2013, I published Securi-
ties Analysis, Portfolio Management, and Financial Derivatives with Joe Finnerty, John
Lee, Alice C. Lee, and Don Wort. In this book, we used financial econometrics, math-
ematics, statistics, and computer tools to discuss the topics of security analysis, portfo-
lio management, and financial derivatives. In 2019, I published Financial Econometrics,
Mathematics, and Statistics with Hong-Yi Chen and John Lee. This book can be used to
teach quantitative finance for either masters’ students or Ph.D. students.
In 2006, I edited the Encyclopedia of Finance with Alice C. Lee. The second edi-
tion of this encyclopedia was published in 2013. This encyclopedia is classified into
two parts, terms and essays and papers. In the second edition, there are 75 papers,
which show financial econometrics, statistics, and mathematics can be used in finance
research. In 2010, I edited Handbook of Quantitative Finance and Risk Management
with Alice C. Lee and John Lee. In 2015, I edited Financial Econometrics and Statis-
tics with John Lee. To my best knowledge, this is the most popular quantitative finance
handbook that has been downloaded. It has been downloaded more than 500,000 times.
Most recently, I edited Financial Econometrics, Statistics, Technology And Machine
Learning. This handbook is an updated and expanded version of a previous handbook
first published in 2015.
To promote, financial econometrics, mathematics, statistics, and technology in
finance and accounting research I started a journal entitled, “Review of Quantitative
Finance and Accounting.” This journal is one of the top 20 most important journals
in the finance and accounting field. In addition, I also started a conference entitled,
Conference on Financial Economics and Accounting. The consortium of this confer-
ence includes Rutgers University, New York University, Indiana University, Univer-
sity of Maryland, University of Toronto, Georgia State University, Temple University,
and Tulane University. To my best knowledge, this is the most well-known finance and
accounting interdisciplinary conference.
The following is a discussion of Financial Econometrics, Statistics, Technology and
Machine Learning.
Based on the chapter titles, which can be found in “Appendix 1”, we classify 130
chapters into the following 12 topics:
(1) Financial Accounting and Auditing
The titles of these chapters that belong to this group are:
• Chapter 2: Do Managers Use Earnings Forecasts to Fill a Demand They Perceive

From Analysts?
• Chapter 3: A potential benefit of increasing book–tax conformity: Evidence from the
reduction in audit fees
• Chapter 17: External Financing Needs and Early Adoption of Accounting Standards:
Evidence from the Banking Industry
• Chapter 21: Data Mining Applications in Accounting and Finance Context
13
• Chapter 22: Tradeoff Between Reputation Concerns and Economic Dependence for

Auditors—Threshold Regression Approach
• Chapter 30: Earnings Forecasts and Revisions, Price Momentum, and Fundamental
Data: Further Explorations of Financial Anomalies
• Chapter 32: The Association Between Book-Tax Differences and CEO Compensation
• Chapter 53: The Revision of Systematic Risk on Earnings Announcement in the
Presence of Conditional Heteroscedasticity
• Chapter 54: Applications of Fuzzy Set to International Transfer Pricing and Other
Business Decisions
• Chapter 105: The Path Leading Up to the New IFRS 16 Leasing Standard: How was
the Restructuring of Lease Accounting Received by Different Advocacy Groups?
• Chapter 130: Using Path Analysis to Integrate Accounting and Non-Financial Infor-
mation: The Case for Revenue Drivers of Internet Stocks
Overall, these papers discuss earnings announcement and forecasting, auditing, tax,
IFRS, transfer pricing, banking accounting, and the implication of book-tax difference.
In addition, this group also discusses how to use new tools such as fuzzy set, path analy-
sis, and threshold regression to analyze these topics.
(2) Mutual Funds and Hedge Funds
• Chapter 12: Application of Intertemporal CAPM on International Corporate Finance

and Mutual Fund Research
• Chapter 87: Fundamental Analysis, Technical Analysis, and Mutual Fund Perfor-
mance
• Chapter 91: Opacity, Stale Pricing, Extreme Bounds Analysis, and Hedge Fund Per-
formance: Making Sense of Reported Hedge Fund Returns
• Chapter 108: How Many Good and Bad Funds are There, Really?
• Chapter 125: Using Smooth Transition Regressions to Model Risk Regimes for
Hedge Funds
Overall, these papers discuss mutual funds and hedge funds. In addition, in this section
we use CAPM, ICAPM, fundamental analysis, technical analysis, extreme bounds analysis,
and smooth transition regression to analyze both mutual funds and hedge funds.
(iii) Corporate Finance

• Chapter 41: An ODE approach for the expected discounted penalty at ruin in a jump-
diffusion model
• Chapter 45: Product Market Competition And CEO Pay Benchmarking
• Chapter 46: Cash Conversion Systems in Corporate Subsidiaries
• Chapter 49: An Integrated Model for the Cost-Minimizing Funding of Corporate
Activities over Time
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C. F. Lee
1546
• Chapter 56: Acceptance of New Technologies by Employees in Financial Industry

• Chapter 59: Analysis of Sequential Conversions of Convertible Bonds: A Recurrent
Survival Approach
• Chapter 67: Splines, Heat, and IPOs: Advances in the Measurement of Aggregate
IPO Issuance and Performance
• Chapter 76: The role of financial advisors in M&As: Do domestic and foreign advi-
sors differ?
• Chapter 77: Discriminant Analysis, Factor Analysis, and Principal Component Anal-
ysis: Theory, Method, and Applications
• Chapter 96: Optimal Payout Ratio under Uncertainty and the Flexibility Hypothesis:
Theory and Empirical Evidence
• Chapter 116: Impacts of Measurement Errors on Simultaneous Equation Estimation
of Dividend and Investment Decisions
• Chapter 120: Survival Analysis: Theory and Applications in Finance
• Chapter 126: Application of Discriminant Analysis, Factor Analysis, Logistic
Regression, and KMV-Merton Model in Credit Risk Analysis
Overall, these papers discuss product market competition, CEO pay benchmarking,
cash conversion system, cost-minimizing funding of corporate activities, sequential
conversions of convertible bonds, IPO issuance and performance, merger and acquisi-
tion, and optimal payout ratio. In addition, methodologies such as the recurrent survival
approach, splines and heat, fixed effect, flexibility hypothesis, and threshold regression
analyze these topics.
(4) Asset Pricing
• Chapter 10: Application of the Multivariate Average F Test to Examine Relative

Performance of Asset Pricing Models with Individual Security Returns
• Chapter 19: Sourcing Alpha in Global Equity Markets: Market Factor Decomposi-
tion and Market Characteristics
• Chapter 48: Consumption-Based Asset Pricing with Prospect Theory and Habit For-
mation
• Chapter 62: Effects of Measurement Errors on Systematic Risk and Performance
Measure of a Portfolio
• Chapter 64: Application of Filtering Methods in Asset Pricing
• Chapter 70: VG NGARCH versus GARJI Model for Asset Price Dynamics
• Chapter 79: Market Model, CAPM, and Beta Forecasting
• Chapter 81: Single-Index Model, Multiple-Index Model, and Portfolio Selection
• Chapter 82: Sharpe Performance Measure and Treynor Performance Measure
Approach to Portfolio Analysis
• Chapter 98: Cross-sectionally Correlated Measurement Errors in Two-Pass Regres-
sion Tests of Asset-Pricing Models
• Chapter 99: Asset Pricing with Disequilibrium Price Adjustment: Theory and
Empirical Evidence
13
• Chapter 100: A Dynamic CAPM with Supply Effect: Theory and Empirical Results
• Chapter 114: Impacts of Time Aggregation on Beta Value and R Squared Estima-
tions Under Additive and Multiplicative Assumptions: Theoretical Results and
Empirical Evidence
• Chapter 122: The Evolution of Capital Asset Pricing Models: Update and Extension
• Chapter 129: DCC-GARCH Model For Market and Firm-Level Dynamic Correlation
in S&P 500
Overall, these papers discuss alternative theory, methodologies, and applications in cap-
ital asset pricing.
5. Options
• Chapter 7: Statistical Distributions and Option Bound Determination

• Chapter 15: Pricing Fair Deposit Insurance: Structural Model Approach
• Chapter 24: Alternative Methods for Determining Option Bounds: A Review and Com-
parison
• Chapter 27: Itô’s Calculus and the Derivation of the Black–Scholes Option-Pricing
Model
• Chapter 33: Stochastic Volatility Models: Faking a Smile
• Chapter 34: Entropic Two-Asset Option
• Chapter 40: Does VIX Truly Measure Return Volatility?
• Chapter 42: How Does Investor Sentiment Affect Implied Risk-Neutral Distributions of
Call and Put Options?
• Chapter 50: Empirical Studies of Structural Credit Risk Models and the Application in
Default Prediction: Review and New Evidence
• Chapter 51: Empirical Performance of the Constant Elasticity Variance Option Pricing
Model
• Chapter 83: Options and Option Strategies: Theory and Empirical Results
• Chapter 84: Decision Tree and Microsoft Excel Approach for Option Pricing Model
• Chapter 85: Statistical Distributions, European Option, American Option, and Option
Bounds
• Chapter 86: A Comparative Static Analysis Approach to Derive Greek Letters: Theory
and Applications
• Chapter 89: Synthetic Options, Portfolio Insurance, and Contingent Immunization
• Chapter 102: Alternative Methods to Derive Option Pricing Models: Review and Com-
parison
• Chapter 103: Option Price and Stock Market Momentum in China
• Chapter 109: Constant Elasticity of Variance Option Pricing Model: Integration and
Detailed Derivation
• Chapter 110: An Integral-Equation Approach for Defaultable Bond Prices with Appli-
cation to Credit Spreads
• Chapter 128: Estimating the Tax-Timing Option Value of Corporate Bonds
Overall, these papers discuss theory, methodologies, and applications of option pricing
in both corporate finance, portfolio insurance, and others.
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C. F. Lee
1548
(6) Portfolio Analysis and Mutual Fund Performance
• Chapter 4: Gold in Portfolio: A Long-Term or Short-Term Diversifier?

• Chapter 13: What Drives Variation in the International Diversification Benefits? A
Cross-Country Analysis
• Chapter 14: A Heteroskedastic Black-Litterman Portfolio Optimization Model with
Views Derived From a Predictive Regression
• Chapter 43: Intelligent Portfolio Theory and Strength Investing in the Confluence of
Business & Market Cycles and Sector & Location Rotations
• Chapter 47: Is the Market Portfolio Mean–Variance Efficient?
• Chapter 68: The Effects of the Sample Size, the Investment Horizon and Market Condi-
tions on the Validity of Composite Performance Measures: A Generalization
• Chapter 69: The Sampling Relationship Between Sharpe’s Performance Measure and
its Risk Proxy: Sample Size, Investment Horizon and Market Conditions
• Chapter 80: Utility Theory, Capital Asset Allocation, and Markowitz Portfolio-Selec-
tion Model
• Chapter 81: Single-Index Model, Multiple-Index Model, and Portfolio Selection
• Chapter 82: Sharpe Performance Measure and Treynor Performance Measure Approach
to Portfolio Analysis
• Chapter 88: Bond Portfolio Management, Swap Strategy, Duration, and Convexity
• Chapter 93: Bayesian Portfolio Mean–Variance Efficiency Test with Sharpe Ratio’s
Sampling Error
• Chapter 104: Advancement of Optimal Portfolios with Short-sales and Transaction
Costs: Modeling and Effectiveness
• Chapter 121: Pricing Liquidity in the Stock Market
Overall, these papers discuss the theory, methodologies, and applications in portfolio
analysis and mutual fund performance evaluation.
(7) Risk Management
• Chapter 9: Key Borrowers Detected by the Intensities of Their Interactions

• Chapter 15: Pricing Fair Deposit Insurance: Structural Model Approach
• Chapter 20: Support Vector Machines Based Methodology for Credit Risk Analysis
• Chapter 35: The Joint Determinants of Capital Structure and Stock Rate of Return: A
LISREL Model Approach
• Chapter 38: Simultaneously Capturing Multiple Dependence Features in Bank Risk
Integration: A Mixture Copula Framework
• Chapter 39: GPU Acceleration for Computational Finance
• Chapter 44: Evolution Strategy Based Adaptive Lq Penalty Support Vector Machines
with Gauss Kernel for Credit Risk Analysis
• Chapter 50: Empirical Studies of Structural Credit Risk Models and the Application in
Default Prediction: Review and New Evidence
13
• Chapter 57: Alternative Method for Determining Industrial Bond Ratings: Theory and
Empirical Evidence
• Chapter 58: An Empirical Investigation of The Long Memory Effect on the Relation of
Downside Risk and Stock Returns
• Chapter 61: Dynamic Term Structure Models Using Principal Components Analysis
Near the Zero Lower Bound
• Chapter 65: Sampling Distribution of the Relative Risk Aversion Estimator: Theory
and Applications
• Chapter 72: Non-Parametric Inference on Risk Measures for Integrated Returns
• Chapter 73: Copulas and Tail Dependence in Finance
• Chapter 78: Credit Analysis, Bond Rating Forecasting, And Default Probability Esti-
mation
• Chapter 101: Estimation Procedures of Using Five Alternative Machine Learning
Methods for Predicting Credit Card Default
• Chapter 107: Crisis Impact on Stock Market Predictability
• Chapter 127: Predicting Credit Card Delinquencies: An Application of Deep Neural
Networks
• Chapter 131: The Implications Of Regulation In The Community Banking Sector:
Risk And Competition
Overall, these papers discuss the theory, methodologies, and applications of risk
management.
(8) International Finance and Economics

• Chapter 13: What Drives Variation in the International Diversification Benefits? A
Cross-Country Analysis
• Chapter 23: ASEAN Economic Community: Analysis Based on Fractional Integra-
tion and Cointegration
• Chapter 52: The Jump Behavior of a Foreign Exchange Market: Analysis of the Thai
Baht
• Chapter 60: Determinants of Euro-Area Bank CDS Spreads
• Chapter 118: A Re-examination of Global Financial Integration: A Non-Parametric
Approach
• Chapter 123: The Multivariate GARCH Model and Its Application to East Asian
Financial Market Integration
Overall, these papers discuss the theory, methodologies, and applications of inter-
national finance, especially these papers show how the intertemporal CAPM, portfolio
theory, and GARCH model can be used to investigate the issue related to international
finance and economics.
13
C. F. Lee
1550
(9) Investment Analysis and Behavior Finance
• Chapter 6: Forecast Performance of the Taiwan Weighted Stock Index: Update and
Expansion
• Chapter 8: Measuring the Collective Correlation of a Large Number of Stocks
• Chapter 16: Application of Structural Equation Modeling in Behavioral Finance: A
Study on the Disposition Effect
• Chapter 18: Improving The Stock Market Prediction with Social Media via Broad
Learning
• Chapter 29: Jump Spillover and Risk Effects on Excess Returns in the United States
During The Great Depression
• Chapter 30: Earnings Forecasts and Revisions, Price Momentum, and Fundamental
Data: Further Explorations of Financial Anomalies
• Chapter 31: Ranking Analysts by Network Structural Hole
• Chapter 36: Time–Frequency Wavelet Analysis of Stock-Market C0-Movement
Between and Within Geographic Trading Blocs
• Chapter 37: Alternative Methods to Deal with Measurement Error
• Chapter 42: How Does Investor Sentiment Affect Implied Risk-Neutral Distributions
of Call and Put Options?
• Chapter 55: A Time-Series Bootstrapping Simulation Method to Distinguish Sell-
Side Analysts’ Skill From Luck
• Chapter 87: Fundamental Analysis, Technical Analysis, and Mutual Fund Perfor-
mance
• Chapter 90: Alternative Security Valuation Model: Theory and Empirical Results
• Chapter 94: Does Revenue Momentum Drive or Ride Earnings or Price Momentum?
• Chapter 95: Technical, Fundamental, and Combined Information for Separating
Winners from Losers
• Chapter 103: Option Price and Stock Market Momentum in China
• Chapter 106: Implied Variance Estimates For Black–Scholes And CEV OPM:
Review And Comparison
• Chapter 112: Time Series and Neural Network Forecasts of Daily Stock Prices
• Chapter 113: Covariance Regression Model for Non-normal Data
• Chapter 115: Large-Sample Theory
• Chapter 119: ALAN—Algorithmic Analyst: An application for Artificial Intelli-
gence Content as a Service
• Chapter 121: Pricing Liquidity in the Stock Market
Overall, these papers discuss the theory, methodologies, and applications in invest-
ment analysis and behavior finance.
(10) Banking Management
• Chapter 25: Financial Reforms and the Differential Impact of Foreign versus Domes-
tic Banking Relationships on Firm Value
13
• Chapter 63: Forecasting Net Charge-Off Rates Of Banks: A PLS Approach

• Chapter 66: Social Media, Bank Relationships and Firm Value
• Chapter 71: Why do Smartphones and Tablets Users Adopt Mobile Banking
• Chapter 117: Big Data and Artificial Intelligence in the Banking Industry
• Chapter 131: The Implications Of Regulation In The Community Banking Sector:
Risk And Competition
Overall, these papers discuss the theory, methodologies, and applications of banking
management.
(11) Futures and Index Futures
• Chapter 11: Hedge Ratio and Time Series Analysis

• Chapter 89: Synthetic Options, Portfolio Insurance, and Contingent Immunization
• Chapter 92: Does Quantile Co-integrated Relationships Exist Between Spot and Futures
Gold Prices?
Overall, these papers discuss the theory, methodologies, and applications of futures and
index futures.
(12) Methodology
Chapter 5: Application of Simultaneous Equation in Finance Research

Chapter 26: Time-Series Analysis: Components, Models, and Forecasting
Chapter 28: Durbin-Wu-Hausman Specification Tests
Chapter 37: Alternative Errors-In-Variables Models And Their Applications In Finance
Research
Chapter 74: Some Improved Estimators of Maximum Squared Sharpe Ratio
Chapter 75: Errors-in-Variables and Reverse Regression
Chapter 111: Sample Selection Issues and Applications
Chapter 115: Large-sample Theory
Chapter 116: Impacts of Measurement Errors on Simultaneous Equation Estimation of
Dividend and Investment Decisions
Chapter 120: Survival Analysis: Theory and Applications in Finance
Chapter 124: Review of Difference-in-Difference Analyses in Social Sciences: Applica-
tion in Policy Test Research
Overall, these chapters discuss some important methodologies that can be used in
finance research. These methodologies include simultaneous equation, time-series analysis,
specification tests, errors-in-variables methodology, sample selection issues, large-sample
theory, survival analysis, and difference-in-difference analysis. This new handbook has
extensively discussed research methodology to be used in finance. This methodology was
discussed in the last 12 sections.
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C. F. Lee
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8 My innovated applications of financial econometrics, statistics,

mathematics, and technology in finance and accounting research
In this section, I will discuss my experience in innovated applications of financial econo-

metrics, statistics, mathematics, and technology in finance and accounting research.
8.1 Financial econometrics
During the last 45 years, I have contributed several innovated financial econometric appli-
cations to finance and accounting research.
(a) Measurement errors applications
In 1973, I wrote a dissertation, entitled, “Errors-in-variables estimation procedures

with applications to a capital asset pricing model.” I published several papers related to
measurement error in finance research. These papers include Lee and Jen (1978a, b) and
Lee (1976a, b, c).
Lee and Jen’s paper theoretically investigated how the measurement error of mar-
ket rates of return on the estimated beta coefficient and Jensen investment performance.
Lee’s paper discussed how the estimated endogenous variable can contain estimated
error and how this issue can be dealt with. Lee et al. (2015) has discussed alternative
methods to deal with measurement error in finance research.
By using the simultaneous equation of dividend and investment decisions, Lee and
Lin (2020) have theoretically investigated how the over-identified information in a
simultaneous equation system can been used to solve the under-identified conditions
caused by the measurement errors of earnings.
(b) SUR applications
Lee (1976a, b, c) used SUR approach to examine the functional form and the divi-
dend effect of the electric utility industry. In 1981, Lee and Zumwalt (1981) used the
SUR method to investigate associations between alternative accounting profitabil-
ity measures and security returns. In Gilmer and Lee (1986), we used SUR method to
investigate Granger’s proposition on dividend controversy.
c. Box–Cox transformation applications
Box–Cox transformation can be used to test whether a regression relationship is lin-

ear, log-linear or nonlinear. Kau and Lee (1976a, b, c) used Box–Cox transformation to
investigate the functional form in estimating the density gradient. Frecka and Lee (1983)
used Box–Cox transformation to examine the functional form for the partial adjustment
process of financial ratios.
d. Fixed effect and random effect applications
Chang and Lee (1977) used pooled time-series and cross section data to test the firm
and time effects in financial analysis. To my best knowledge, this is the first paper to use
13
both random and fixed effect in finance research. Later, I frequently used fixed effect in
financial accounting research, which includes Lee et al. (2011) and Kuo and Lee (2016).
e. Investment horizon
Lee (1976a, b, c) used CES production function to investigate the investment horizon
and Lee et al. (1990a, b) derived a generalized heterogeneous investment horizon type
of capital asset pricing model.
f. Model generalization
Lee et al. (1987) derived a generalized dividend behavior model and Lee and Wu
(1988) derived the generalized financial ratio model. Recently, Lee and Lin (2019)
have used this generalized dividend behavior model to reexamine the recent research
related to dividend smoothing research.
g. LISREL and Multifactor and multi-indicator models
• Chang et al. (2009) studied the determinants of capital structure choice by using a
structural equation modeling approach.
• Lee et al. (2015) used the multi-factor, multi-indicator approach to test the asset
pricing model.
• Yang et al. (2010) studied co-determination of capital structure and stock returns in
terms of a LISREL model.
• Chen et al. (2019a, b) used multifactor and multi-indicator model to investigate the
joint determinants of capital structure and stock rate of return.
h. Time aggregation
Lee and Morimune (1978) theoretically studied the impact of time aggregation
on the estimate of beta coefficient and r-square estimates. Cartwright and Lee (1987)
empirically studied the impact of time aggregation and beta estimation.
8.2 Financial statistics
a. Statistical distribution of Sharpe ratio
In the paper entitled, “Sharpe Ratio When Asset Returns Have Fat Tails or Non-Fat
Tails and Long Memory: Theory and Applications,” Kao and Lee (2019) investigated
statistical distribution of Sharpe ratio and proposed a distribution index to test whether
Sharpe ratio can be used to evaluate investment performance or not.
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C. F. Lee
1554
b. Statistical distribution of estimated risk aversion parameter
Karson et al. (1995) investigated the sampling distribution of the relative risk aver-
sion estimator parameter.
c. Statistic estimation method
Chang et al. (2007) used square root stochastic volatility with or without jump
model to study the heteroskedasticity and jump behavior of the Thai Baht. The MCMC
(Markov Chain Monte Carlo) method proposed by Jacquier et al. (1994) is used to esti-
mate the models. Bayesian factor is used to evaluate the explanatory power of compet-
ing model. It turns out that the square root stochastic volatility model with independent
jump in observation and state equations (SVIJ) has the best explanatory power to our
sample.
8.3 Financial mathematics and finance theory
• Lee et al. (2011) used variable differential equation to derive optimal policy theory.
• Chen et al. (2007a, b) leveraged an ordinary differential equation (ODE) approach for
the expected discounted penalty at ruin in a jump-diffusion model.
• Lee and Shi (2010) provide a detailed review on ordinary differential equation (ODE)
and its applications in finance and economics research. Methodologically, there are var-
ious approaches to solve an ordinary differential equation. For example, among these
viable solution approaches, the most commonly used one is the Laplace transform
approach. Lee and Shi (2010) demonstrate the applications of Laplace transform tool
for solving ODE pertaining to both deterministic and stochastic systems.
• Chen et al. (2009) used an integral-equation approach for defaultable bond prices with
application to credit spreads.
• Lee et al. (2005) published a paper entitled “A Fuzzy Set Approach for Generalized
CRR Model: An Empirical Analysis of S&P 500 Index Options”. This paper used
fuzzy set theory to generalize CRR option pricing model. Empirical results show that
fuzzy set type option pricing model outperforms CRR type option pricing model.
• Lee et al. (2010) developed a fuzzy real option valuation approach to capital budgeting
under uncertainty environment.
• Lee and Wang (2011) developed fuzzy multi-criteria decision-making for evaluating
mutual fund strategies.
• Hsin et al. (1994) derived hedge ratio in terms quadratic utility function.
• Chen et al. (2013) investigated the investment decision and dividend policy jointly from
a non-steady state to a steady state. This paper jointly optimized the growth rate and
payout ratio. They optimized the firm value to obtain the optimal growth rate in terms
of a logistic equation and found that the steady state growth rate can be used as the
benchmark for the mean-reverting process of the optimal growth rate. They also inves-
tigated the specification error of the mean and variance of dividend per share when
introducing the stochastic growth rate. Empirical results support the mean-reverting
process of the growth rate and the importance of covariance between the profitability
and the growth rate in determining dividend payouts. The intertemporal behavior of the
covariance may shed some light on the fact of disappearing dividends over decades.
13
• Kau and Lee (1976a, b, c) used CES to theoretically develop capital-land substitution
and urban land use.
8.4 New CAPM research
• Lee and Lloyd (1976) and Lee and Lloyd (1978) developed recursive and block recur-
sive type of CAPM.
• Lee et al. (2005) developed CAPM with supply effect and Lee et al. (2013a, b, c, d
developed simultaneous asset pricing models with disequilibrium adjustment process.
• Chang et al. (2003) identified a hedging factor in Campbell (1993)’s intertemporal
asset pricing model and used this benchmark to construct a new performance measure.
Based on this measure, they are able to evaluate fund managers hedging timing ability
in addition to more traditional security selectivity and market timing. Since the nor-
mality assumption is often violated in financial time series, they estimated the model
and computes all tests using QML (Quasi-Maximum Likelihood) approach proposed by
Bollerslev and Wooldridge (1988).
a. GMM application
The main difference of GMM estimation method from 2SLS and 3SLS estimation meth-
ods is that GMM method uses the efficient weighting matrix accounting for possible heter-
oskedasticity. Lee et al. (2016a, b, c) empirically investigated the interrelationship among
investment, financing and dividend decisions using GMM, 2SLS and 3SLS methods.
b. Technical, Fundamental, and Combined Information for Separating Winners from Losers
Chen et al. (2015a, b) examined how fundamental accounting information can be used
to supplement technical information to separate momentum winners from losers. They
introduced a ratio of liquidity buy volume to liquidity sell volume (BOS ratio) to proxy the
level of information asymmetry for stocks and showed that the BOS momentum strategy
can enhance the profits of momentum strategy. They further proposed a unified framework,
produced by incorporating two fundamental indicators—the FSCORE and the GSCORE—
into momentum strategy. Empirical results showed that the combined investment strategy
includes stocks with larger information content that the market cannot reflect in time, and
therefore, the combined investment strategy outperforms momentum strategy by generat-
ing significantly higher returns.
8.5 Financial technology
During the last 45 years, I have used different types of computer programs for research and
textbook writing. Most recently, I led a team to write a book, entitled, “Essentials of Excel,
Excel VBA, SAS and Minitab for Statistical and Financial Analysis,” which was published
by Springer in 2016 (see “Appendix 4” for more detail). In this book, we showed how
Excel, Excel VBA, SAS, and Minitab programs could be used in statistical and financial
analysis.
13
C. F. Lee
1556
9 Summary and concluding remarks
This review paper has discussed important financial econometrics, mathematics, statistics,
and financial technology, which are used in finance and accounting research. We first dis-
cussed financial econometrics, which included regression models, single equation regres-
sion models, simultaneous equation models, panel data analysis, alternative methods to
deal with measurement error, time-series analysis, and others. We also introduced topics
related to financial statistics, including statistical distributions, principle components and
factor analysis, non-parametric and semi-parametric analyses, cluster analysis, and others.
Financial mathematics and financial technology were also briefly discussed in this paper.
Research topics include asset pricing, corporate finance, financial institution, investment
and portfolio management, option pricing model, futures and hedging, mutual fund, credit
risk modeling, and others.
From this paper, I have found that theory, method, and data are the three most important
ingredients to perform good research in finance, economics, and accounting. From the evo-
lution of methodology applications, I found new methodologies of financial, econometric,
mathematics, statistics, and technology have improved the empirical research in finance,
economics, and accounting. New methodologies have been extensively used in traditional
topics and obtained new insight of empirical research. In some sense, I have found that this
evolution process can be regarded as filling old wine in a new bottle.
From my personal experience, which was discussed in sections 7 and 8, I found that
financial econometrics, mathematics, statistics, and technology have progressed drastically
in the last 50 years in finance and accounting research. I believe that in order to perform
excellent research in these areas, we need theory, methodology, and data, which were dis-
cussed in detail in Chapter 8 of my autobiography entitled, “From East to West” (2017).
Good methodology training means that the researcher has a good weapon for fighting a
successful research war. More than 2000 years ago, a well-known Chinese book entitled,
“Art of the War,” by Sunzi was applied to business competition. Chinese proverbs say, the
business field is just like the war field. This implies that business competition is very com-
plicated, which means it is not easy to successfully run a business in a very complicated
environment. By using these concepts, I would like to conclude that good research meth-
odologies give researchers good weapons to accomplish better research in both finance and
accounting.
Appendix 1: Table of contents and keywords for the handbook entitled

“Financial econometrics, statistics, technology and machine learning”
(World Scientific 2020)
This appendix will cover the table of contents and important keywords for this handbook.
Part A of this appendix covers the table of contents and Part B covers the keywords.
Part A: table of contents
1. Introduction
2. Do Managers Use Earnings Forecasts to Fill a Demand They Perceive From Analysts?
by Orie Barron, Jian Cao, Xuguang Sheng, Maya Thevenot, and Baohua Xin
13
3. A potential benefit of increasing book–tax conformity: Evidence from the reduction

in audit fees by Nantin Kuo and Cheng-Few Lee
4. Gold in Portfolio: A Long-Term or Short-Term Diversifier? by Fu-Lai Lin, Sheng Yung
Yang, and Yu-Fen Chen
5. Econometric Approach To Financial Analysis, Planning, And Forecasting By Cheng-
Few Lee
6. Forecast Performance of the Taiwan Weighted Stock Index: Update and Expansion by
Deng-Yuan Yi, Hsiao-Yin Chen, and Cheng-Few Lee
7. Statistical Distributions and Option Bound Determination by Cheng-Few Lee and Peter
Guangping Zhang
8. Measuring the collective correlation of a large number of stocks by Wei-Fang Niu and
Henry Horng-Shing Lu
9. Key Borrowers Detected by the Intensities of Their Interactions by Fuad Aleskerov,
Irina Andrievskaya, Alisa Nikitina, and Sergey Shvydun
10. Application of the Multivariate Average F Test to Examine Relative Performance of
Asset Pricing Models with Individual Security Returns by Shafiqur Rahman and Mat-
thew J. Schneider
11. Hedge Ratio and Time Series Analysis by Sheng-Syan Chen, Cheng-Few Lee, and
Keshab Shresth
12. Applications of Intertemporal CAPM on International Corporate Finance and Mutual
Fund Research by JR Chang, Cheng-Few Lee, and M W Huang
13. What Drives Variation in the International Diversification Benefits? A Cross-country
Analysis” by Wan-Jiun Paul Chiou and Kuntara Pukthuanthong
14. A heteroskedastic Black-Litterman portfolio optimization model with views derived
from a predictive regression by Wei-Hung Lin, Huei-Wen Teng, and Chi-Chun Yang
15. Pricing Fair Deposit Insurance: Structural Model Approach by Tzu Tai, Cheng-Few
Lee, Tian-Shyr Dai, Keh Luh Wang, and Hong-Yi Chen
16. Application of Structural Equation Modeling in Behavioral Finance: A Study on the
Disposition Effect by Chang Hsin-Hue
17. External Financing Needs and Early Adoption of Accounting Standards: Evidence
from the Banking Industry by Sophia I-Ling Wang
18. Improving the Stock Market Prediction with Social Media via Broad Learning by Xi
Zhang and Philip S. Yu
19. Sourcing Alpha In Global Equity Markets: Market Factor Decomposition And Market
Characteristics by Dr. S.S. Mohanty
20. Support Vector Machines Based Methodology for Credit Risk Analysis by Jianping
Li, Mingxi Liu, Cheng-Few Lee, and Dengsheng Wu
21. Data Mining Applications in Accounting and Finance Context by Wikil Kwak, Yong
Shi, and Cheng-Few Lee
22. Tradeoff between reputation concerns and economic dependence for auditors—Thresh-
old regression approach by Fang-Chi Lin, Chin-Chen Chien, Cheng-Few Lee, Hsuan-
Chu Lin, and Yu-Cheng Lin
23. The ASEAN Economic Community: Analysis Based On Fractional Integration And
Cointegration by Luis Alberiko Gil-Alana, University of Navarra and Hector Carcel,
Bank of Lithuania
24. Alternative Methods for Determining Option Bounds: A Review and Comparison by
Cheng-Few Lee, Zhaodong Zhong, Tzu Tai,and Hongwei Chuang
25. Financial Reforms and The Differential Impact of Foreign versus Domestic Banking
Relationships on Firm Value by Hai-Chin Yu, Cheng-Few Lee and Ben Sopranzetti
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C. F. Lee
1558
2 6. Time-Series Analysis: Components, Models, and Forecasting by Cheng-Few Lee

27. Itô’s Calculus and the Derivation of the Black Option-Pricing Model-Scholes by Mal-
liaris A.G. and George Chalamandaris
28. Durbin-Wu-Hausman Specification Tests by Robert H. Patrick
29. Jump Spillover and Risk Effects on Excess Returns in the United States During the
Great Recession by Jessica Schlossberg and Norman R. Swanson
30. Earnings Forecasts and Revisions, Price Momentum, and Fundamental Data: Further
Exploration of Financial Anomalies by John B. Guerard Jr. and Andrew Mark
31. Ranking Analysts by Network Structural Hole by Re-Jin Guo, Yingda Lu, and Lingling
Xie
32. The Association Between Book-Tax Differences and CEO Compensation by Kin-Wai
Lee and Gillian Hian-Heng Yeo
33. Stochastic Volatility Models: Faking a Smile by Dean Diavatopoulos and Oleg Soko-
linskiy
34. Entropic Two-Asset Option by Tumellano Sebehela
35. The Joint Determinants of Capital Structure and Stock Rate of Return: A LISREL
Model Approach by Hong-Yi Chen, Cheng-Few Lee and Tzu Tai
36. Time–Frequency Wavelet Analysis of Stock Market Co-Movement Between and
Within Geographic Trading Blocs by Bilel Kaffel and Fathi Abid
37. Alternative errors-in-variables models and their applications in finance research by
Hong-Yi Chen, Alice C. Lee, and Cheng-Few Lee
38. Simultaneously Capturing Multiple Dependence Features in Bank Risk Integration:
A Mixture Copula Framework by Xiaoqian Zhu, Dengsheng Wu, Jianping Li
39. GPU Acceleration for Computational Finance by Chuan-Hsiang Han
40. Does VIX Truly Measure Return Volatility? by K. Victor Chow, Wanjun Jiang, and
Jingrui Li
41. An ODE approach for the expected discounted penalty at ruin in a jump-diffusion
model by Yu-Ting Chen, Cheng-Few Lee, and Yuan-Chung Sheu
42. How Does Investor Sentiment Affect Implied Risk-Neutral Distributions of Call and
Put Options? by Wen-Ming Szu, Yi-Chen Wang, and Wan-Ru Yang
43. Intelligent Portfolio Theory and Strength Investing in the Confluence of Business &
Market Cycles and Sector & Location Rotations by Heping Pan
44. Evolution Strategy Based Adaptive Lq Penalty Support Vector Machines with Gauss
Kernel for Credit Risk Analysis by Jianping Li, Gang Li, Dongxia Sun, and Cheng-Few
Lee
45. Product Market Competition And CEO Pay Benchmarking by Ivan E. Brick and Darius
Palia
46. Equilibrium Rate Analysis of Cash Conversion Systems: The Case of Corporate Sub-
sidiaries by Weiwei Chen, Benjamin Melamed, Oleg Sokolinskiy, and Ben Sopranzetti
47. Is the market portfolio mean–variance efficient? by Robert R. Grauer
48. Consumption-Based Asset Pricing with Prospect Theory and Habit Formation by Jr-
Yan Wang and Mao-Wei Hung
49. An Integrated Model for the Cost-Minimizing Funding of Corporate Activities over
Time by Prof. Manak C. Gupta
50. Empirical Studies of Structural Credit Risk Models and the Application in Default
Prediction: Review and New Evidence by Han-Hsing Lee, Ren-Raw Chen, and Cheng-
Few Lee
51. Empirical Performance of the Constant Elasticity Variance Option Pricing Model by
Ren Raw Chen, Cheng-Few Lee, and Han-Hsing Lee
13
52. The Jump Behavior of Foreign Exchange Market: Analysis of Thai Baht by Jow-Ran
Chang, Mao-Wei Hung,Cheng-Few Lee, and Hsin-Min Lu
53. The Revision Of Systematic Risk On Earnings Announcement In The Presence of
Conditional Heteroscedasticity by Chin-Chen Chien, Cheng-Few Lee, and She-Chih
Chiu
54. Applications of Fuzzy Set to International Transfer Pricing and Other Business Deci-
sions by Wikil Kawk and Yong Shi, Seesok Lee and Cheng-few Lee
55. A time-series bootstrapping simulation method to distinguish sell-side analysts’ skill
from luck by Chen Su and Hanxiong Zhang
56. Acceptance Of New Technologies By Employees In Financial Industry by Veronika
Belousova, Vasily Solodkov, Nikolay Chichkanov, and Ekaterina Nikiforova
57. Alternative Method for Determining Industrial Bond Ratings: Theory and Empirical
Evidence by Lie-Jane Kao and Cheng-Few Lee
58. An Empirical Investigation of the Long Memory Effect on the Relation of Downside
Risk and Stock Returns by Cathy Yi-Hsuan Chen and Thomas C. Chiang
59. Analysis of Sequential Conversions of Convertible Bonds: A Recurrent Survival
Approach by Lie-Jane Kao, Li-Shya Chen, and Cheng-Few Lee
60. Determinants of euro-area bank CDS spreads by Maria-Eleni K. Agoraki, Dimitris A.
Georgoutsos, and George T. Moratis
61. Dynamic Term Structure Models Using Principal Components Analysis Near The
Zero Lower Bound by Januj A. Juneja
62. Effects Of Measurement Errors On Systematic Risk And Performance Measure Of A
Portfolio by Cheng-Few Lee and Frank C. Jen
63. Forecasting Net Charge-Off Rates of Banks: A PLS Approach by James R. Barth,
Sunghoon Joo, Hyeongwoo Kim, Kang Bok Lee, Stevan Maglic, and Xuan Shen
64. Application of Filtering Methods in Asset Pricing by Hao Chang and Yangru Wu
65. Sampling Distribution of the Relative Risk Aversion Estimator: Theory and Applica-
tions by Marvin J. Karson, David C. Cheng, And Cheng-Few Lee
66. Social Media, Bank Relationships and Firm Value by Chia-Hui Chao and Hai-Chin
Yu
67. Splines, Heat, and IPOs: Advances in the Measurement of Aggregate IPO Issuance and
Performance by Zachary A. Smith, PhD, Mazin A. M. Al Janabi, PhD, and Muhammad
Z. Mumtaz, PhD
68. The Effects Of The Sample Size, The Investment Horizon And Market Conditions
On The Validity Of Composite Performance Measures: A Generalization by Son-Nan
Chen and Cheng-Few Lee
69. The Sampling Relationship Between Sharpe’s Performance Measure And Its Risk
Proxy: Sample Size, Investment Horizon And Market Conditions by Son-Nan Chen
and Cheng-Few Lee
70. VG NGARCH versus GARJI Model For Asset Price Dynamics by Lie-Jane Kao and
Cheng-Few Lee
71. Why Do Smartphones And Tablets Users Adopt Mobile Banking by Veronika Belou-
sova and Nikolay Chichkanov
72. Non-parametric Inference on Risk Measures for Integrated Returns by Henghsiu Tsai,
Hwai-Chung Ho, and Hung-Yin Chen
73. Copulas And Tail Dependence In Finance by Wing-Choong Lai and Kim-Leng Goh
74. Some Improved Estimators of Maximum Squared Sharpe Ratio by Siu Kai Choy and
Bu-qing Yang
75. Errors-in-Variables and Reverse Regression by Shafiqur Rahman and Cheng-Few Lee
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C. F. Lee
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76. The role of financial advisors in M&As: Do domestic and foreign advisors differ? by
Kai-Shi Chuang
77. Discriminant Analysis, Factor Analysis, And Principal Component Analysis: Theory,
Method, And Applications by Cheng-Few Lee
78. Credit Analysis, Bond Rating Forecasting, And Default Probability Estimation by
Cheng-Few Lee
79. Market Model, CAPM, And Beta Forecasting by Cheng-Few Lee
80. Utility Theory, Capital Asset Allocation, and Markowitz Portfolio-Selection Model
by Cheng-Few Lee
81. Single-Index Model, Multiple-Index Model, and Portfolio Selection by Cheng-Few
Lee
82. Sharpe Performance Measure and Treynor Performance Measure Approach to Portfolio
Analysis by Paul Chiou and Cheng-Few Lee
83. Options and Option Strategies: Theory and Empirical Results by Cheng-Few Lee
84. Decision Tree and Microsoft Excel Approach for Option Pricing Model by Jow-Ran
Chang and John Lee
85. Statistical Distributions, European Option, American Option, and Option Bounds by
Cheng-Few Lee
86. A Comparative Static Analysis Approach to Derive Greek Letters: Theory and Appli-
cations by Cheng-Few Lee
87. Fundamental Analysis, Technical Analysis, and Mutual Fund Performance by Cheng-
Few Lee
88. Bond Portfolio Management, Swap Strategy, Duration, and Convexity by Cheng-Few
Lee
89. Synthetic Options, Portfolio Insurance, and Contingent Immunization by Cheng-Few
Lee
90. Alternative Security Valuation Model: Theory and Empirical Results by Cheng-Few
Lee
91. Opacity, Stale Pricing, Extreme Bounds Analysis, and Hedge Fund Performance: Mak-
ing Sense of Reported Hedge Fund Returns by Zachary A. Smith, Mazin A. M. Al
Janabi, Muhammad Z. Mumtaz
92. Does Quantile Co-integration Exist between Spot and Futures Gold Prices? by Hai-
Chin Yu, Chia-Ju Lee, and Der-Tzon Hsieh
93. Bayesian Portfolio Mean–Variance Efficiency Test with Sharpe Ratio’s Sampling
Error, by LieJane Kao, Huei Ching Soo and Cheng-Few Lee
94. Does Revenue Momentum Drive or Ride Earnings or Price Momentum? by Hong-Yi
Chen, Sheng-Syan Chen, Chin-Wen Hsin and Cheng-Few Lee
95. Technical, Fundamental, and Combined Information for Separating Winners from
Losers, by Hong-Yi Chen, Cheng-Few Lee, and Wei K. Shih.
96. Optimal Payout Ratio under Uncertainty and the Flexibility Hypothesis: Theory and
Empirical Evidence by Cheng-Few Lee, Manak C. Gupta, Hong-Yi Chen, and Alice
C. Lee.
97. Sustainable Growth Rate, Optimal Growth Rate, and Optimal Payout Ratio: A Joint
Optimization Approach by Hong-Yi Chen, Manak C. Gupta, Alice C. Lee and Cheng-
Few Lee
98. Cross-sectionally correlated measurement errors in two-pass regression tests of asset-
pricing models by Thomas Gramespacher, Armin Bänziger, and Norbert Hilber
13
99. “Asset Pricing with Disequilibrium Price Adjustment: Theory and Empirical Evi-
dence,” (with Chiung-Min Tsai and Alice C. Lee), Quantitative Finance, Volume 13,
Number 2, Pages 227–240, 2013.
100. “A Dynamic CAPM with Supply Effect Theory and Empirical Results,” (with Chiung-
Min Tsai and Alice C. Lee), Quarterly Review of Economic and Finance, Volume 49,
Issue 3, August 2009, Pages 811–828.
101. Estimation Procedures of Using Five Alternative Machine Learning Methods for Pre-
dicting Credit Card Default by Michael Lee and Huei-Wen Teng
102. Alternative Methods to Derive Option Pricing Models: Review and Comparison by
Cheng-Few Lee and Yibing Chen
103. “Option Prices and Stock Market Momentum: Evidence from China” with Jianping
Li, Yanzhen Yao, and Yibing Chen, Quantitative Finance, Published online: 23 Apr
2018
104. Advancement of Optimal Portfolios with Short-sales and Transaction Costs: Modeling
and Effectiveness by Paul Chiou and Jing-RungYu
105. The path leading up to the new IFRS 16 leasing standard: how was the restructuring
of lease accounting received by different advocacy groups? By Christian Blecher and
Stephanie Kruse
106. Implied Variance Estimates For Black–Scholes And CEV OPM: Review And Com-
parison by Cheng-Few Lee, Yibing Chen,and John Lee
107. Crisis Impact on Stock Market Predictability by Rajesh Mohnot
108. How Many Good and Bad Funds Are there, Really? Wayne Ferson and Yong Chen
109. Constant Elasticity Of Variance Option Pricing Model: Integration And Detailed Deri-
vation by Y.L. Hsu, T.I. Lin, and Cheng-Few Lee
110. An Integral-Equation Approach For Defaultable Bond Prices With Application To
Credit Spreads by Yu-Ting Chen, Cheng-Few Lee, and Yuan-Chung Sheu
111. Sample Selection Issues and Applications by Hwei-Lin Chuang and Shih-Yung Chiu
112. Time Series and Neural Network Analysis by K. C. Tseng, Ojoung Kwon, and Luna
C. Tjung
113. Covariance Regression Model for Non-normal Data by Tao Zou, Ronghua Luo,Wei
Lan and Chih-Ling Tsai
114. Impacts of Time Aggregation on Beta Value and R Squared Estimations Under Addi-
tive and Multiplicative Assumptions: Theoretical Results and Empirical Evidence by
Yuanyuan Xiao, Yushan Tang, and Cheng-Few Lee
115. Large-sample Theory by Sunil S. Poshakwale and Anandadeep Mandal
116. Impacts of Measurement Errors on Simultaneous Equation Estimation of Dividend
and Investment Decisions by Cheng-Few Lee and Fu-Lai Lin
117. Big data and Artificial Intelligence in Banking Industry by T. Robert Yu and Xuehu
(Jason) Song
118. A Non-Parametric Examination of Emerging Markets Financial Integration by Ke
Yang, Susan Wahab, Bharat Kolluri, and Mahmoud Wahab
119. ALAN—Algorithmic Analyst An application for Artificial Intelligence Content as a
Service by Ted Hong, Daniel Lee, Wen-Ching Wang
120. Survival Analysis: Theory and Applications in Finance by Feng Gao and Xiaomin He
121. Pricing Liquidity in the Stock Market by Ding Du and Ou Hu
122. The Evolution of Capital Asset Pricing Models: Update and Extension by Yi-Cheng
Shih, Sheng-Syan Chen, Cheng-Few Lee, and Po-Jung Chen
123. The Multivariate GARCH Model and Its Application to East Asian Financial Market
Integration by Yoshihiko Tsukuda, Junji Shimada, and Tatsuyoshi Miyakoshi
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C. F. Lee
1562
124. Review of Difference-in-Difference Analyses in Social Sciences: Application in Policy

Test Research by William H. Greene and Min (Shirley) Liu
125. Using Smooth Transition Regressions to Model Risk Regimes by Liam A. Gallagher,
Mark C. Hutchinson, and John O’Brien
126. Application of Discriminant Analysis, Factor Analysis, Logistic Regression, and
KMV-Merton Model in Credit Risk Analysis by Cheng-Few Lee
127. Predicting Credit Card Delinquencies: An Application of Deep Neural Networks by
Ting Sun and Miklos A. Vasarhalyi
128. Estimating the Tax-Timing Option Value of Corporate Bonds by Peter Huaiyu Chen,
Sheen Liu, and Chunchi Wu
129. DCC-GARCH Model for Market and Firm-Level Dynamic Correlation in S&P 500
by Peimin Chen, Chunchi Wu, and Ying Zhang
130. Using Path Analysis to Integrate Accounting and Non-Financial Information: The Case
for Revenue Drivers of Internet Stocks by Anthony Kozberg
131. The Implications Of Regulation In The Community Banking Sector: Risk And Com-
petition by Gregory McKee and Albert Kagan
Part B: Keywords
The number following each keyword indicates the chapter where the keyword can be found.
Accounting beta (79), Acquisitions (116), Adaptive penalty (44), Additive and Multipli-
cative Rates of Return (114), Advocacy Groups (105), AI Content as a Service (AICaaS)
(119), Algorithmic bias (117), American option (84, 85), American options (24), Analyst
coverage network (31), Analyst recommendation revisions (55), Analysts’ information (2),
Analytic hierarchy process (21), Announcement returns (76), Approximation Approach
(106), ARCH (119), ARCH & GARCH (107), ARCH (Autoregressive conditional hetero-
scedasticity) (11), ARCH method (11), Archimedean copula (73), ARIMA (119), ARIMA-
GARCH model (6), ARIMA models (87), Artificial intelligence (101, 117, 127), Artificial
Regression (28), ASEAN (23), Asian financial crisis (52), Asset (100), Asset allocation
(80), Asset Portfolio (43), Asset pricing (10, 12, 98), Asset Pricing Tests (1), Asymmet-
ric Information (66), Asymmetric taxes (128), Audit fees (3, 22), Audit opinion predic-
tion (21), Auditor change (21), Auditor independence (22), Auditor reputation (22), and
Autoregressive forecasting model (26).
Balance of trade (23), Bank credit risk (60), Bank regulatory compliance (117), Bank
Relationships (66), Bank risk (38), Banking (56), Bankruptcy (15, 21), Banks (17), Barrier
option (15), Basel committee on banking supervision (38), Bayes estimation (74), Bayes
factor (93), Bayes rule (108), Bayesian Approach (37), Bayesian factor (52), Bayesian net
(21), Bayesian test (93), Behavior finance (122), Behavioral finance (16), Beta coefficient
(81), Betting Against Beta (19), Big data (21, 117), Binomial option pricing model (84,
102), Bipower variation tests (29), Black-Litterman model (14), Black–Scholes model
(84), Black–Scholes option pricing model (102), Bond price (110), Bond strategies (88),
Book–tax conformity (3), Book-tax differences (32), Book-to-market (10, 121), Booting
(101), Bootstrap (108), BOS ratio (95), Box–Cox transformation (1), and Box-Jenkins
ARIMA Methodology (112).
Calendar (Time) Spreads (83), Calibration (33), Call option (84), Capital Asset Pric-
ing Model (19, 37), Capital gain (128), Capital structure (35, 37), Capital-Rationed Firms
(46), CAPM (53, 79, 100), CARA utility function (11), Cash Conversion Cycle (46), Cash
Conversion System (46), Causal inference (124), Centrality (9), CEO compensation (32,
13
45), CEO talent (45), CEV Model (106), China (21), Classical Method (37), Clayton cop-
ula (73), Clustering effect model (1), Coefficient Determination (114), Cognitive biases
(16), Coincident indicators (26), Co-integration and error assertion method effectiveness
(11), Collar (83), Collective correlation (8), Combination forecasting model (6), Com-
bined investment strategy (95), Comment Letters (105), Commodity diversifier (4), Com-
mon stock valuation (90), Commonality (2), Community bank (131), Component analysis
(87), Composite forecasting (79, 87), Computational finance (39), Concave utility function
(80), Conditional multivariate F test (93), Conditional tail expectation (72), Conditional
Value at Risk model (104), Confidence index (87), Confirmatory factor analysis (CFA)
(35), Conservative-Minus-Aggressive (19), Constant Elasticity of Variance Model (109),
Constant–Elasticity-of-Variance (CEV) process (51), Consumer sentiment (42), Consump-
tion-based asset pricing model (48), Contagion (129), Continuous wavelet analysis (4),
Corporate governance (32), Correlation (118), Correlation breakdown (8), Cost of Capital
(37, 100), Cost-minimization (49), Covariance (81), Covariance Regression Model (113),
Covered Call (83), Cox Process (34), Credit analysis (78), Credit card (101), Credit Card
Delinquency (127), Credit Default Swaps (60), Credit risk (38, 101), Credit risk classifica-
tion (20, 44), Credit spread (110), Credit-scoring model (57), Cross section of stock returns
(121), Cross-section data (26), CRSP value-weighted index (93), Currency risk (12), and
Cyclical component (26).
Data mining (21, 55), DCC-GARCH model (123), DCC-MVGARCH (129), Debt-like
signal (59), Decision Table (21), Decision tree (21, 101), Decomposition of estimated
regression coefficient (62), Deep Learning (119), Deep Neural Network (127), Default
(101), Default barrier (110), Default Prediction (50), Default probability (78, 126), Default
risk (128), Delinquency (101), Delta (∆) (86), Demand function (99, 122), Deposit insur-
ance (15), Difference-in-differences (124), Dimension reduction (8), Direct and reverse
regression (75), Direct effect (130), Disclosure and counter-signaling (17), Discounted
value (49), Discriminant analysis (77, 78, 126), Discriminatory power (57), Disequilib-
rium effect (99), Disequilibrium estimation method (1), Disequilibrium model (99), Dis-
position effect (16), Disruptive technologies (56), Distributed Lag Models (91), Diversi-
fication (116), Diversification benefits (13), Dividend Policy (97, 116), Dividends (96),
Dodd-Frank (131), Domestic and foreign advisors (76), Dow theory (87), Down-and-Out
Barrier model (50), Downside risk (58), DTSM (Dynamic term structure models) (61),
Due Process (105), Duration (88), Durbin, Wu, Hausman (DWH) Specification Tests (28),
Dynamic capital budgeting decision (5), Dynamic CAPM (122), Dynamic conditional cor-
relation (123, 129), Dynamic conditional variance decomposition (123), Dynamic Factors
(63), and Dynamic hedging (89).
Early adoption (17), Earnings forecasts (30), Earnings management (32), Earnings revi-
sions (30), Earnings Surprises (94), East Asian bond and stock markets (123), Econometric
and statistical methods (47), Efficiency (131), Efficiency hypothesis (32), EGARCH model
(14), Elliptical copula (73), Emerging markets (25), Empirical methods (131), Empirical
performance (51), Employees (56), Endogeneity (28), Endogenous industry structure (45),
Endogenous supply (100), Endogenous variables (5), Equality of tail risks (72), Equity-
like signal (59), Error correction model (6), Errors-in-Variables (37, 75, 98, 116), Estimate
Implied Variance (106), Estimation (116), Estimation Approach (50), Estimation Stability
(114), ETFs (29), Euler equations (12), European options (24, 84), Event extraction (18),
Evolution strategy (44), Ex ante probability (70), ex Post Sharpe ratio (93), Exactly identi-
fied (100), Ex-ante moments (40), Excel program (84), Excel VBA (84), Excess returns
(29), Exchange Option (34), Exogenous variables (5), Expected discounted penalty (41),
Expected payoff (7), Explanatory power (57), Exponential smoothing (26), Exponential
13
C. F. Lee
1564
smoothing constant (26), Extended Kalman Filter (64), External financing (17), Extra-legal
institution (3), and Extreme Bound Analysis (91).
Factor analysis (77, 78, 126), Factor attributes (119), Factor loading (10, 77, 78), Fac-
tor models (10), Factor score (77), False discovery rates (108), Fama and French factor
models (121), FDIC (15), Feature extraction (20), Feltham-Ohlson model (90), Finance—
Investment (69), Financial constraints (49), Financial Crisis (107), Financial Econometrics
(61), Financial market integration (123), Financial mathematics (1), Financial ratios (90),
Financial reform (25), Financial statement analysis (95), Financial statistics (1), Finan-
cial technology (1), Financial z-score (78, 126), Financing costs (49), Finite sample (74),
Finite difference method of the SV model (51), Firm Value (66), First-difference method
(124), Fixed Effects (FE) (28), Fixed-effects model (96), Flexibility hypothesis (96), Fore-
cast timeliness (31), Forecasting Stock Prices (112), Foreign bank debt (25), Foreign bank
relationships (25), Fractional integration (23), Francis and Rowell model (90), Fund per-
formance (108), Fundamental analysis (87, 95, 112), Funding decisions (49), Funding
requirements (49), Future Contract (92), Fuzzy set (21, 54), and Fuzzy regression (1).
Gamma () (86), GARCH (1,1) (123), GARCH (Generalized Autoregressive conditional
heteroscedasticity) (11), GARCH method (11), GARCH model (14), GARCH-jump (70),
GARJI model (70), Gaussian copula (73), Gauss-Markov conditions (115), Generalize
fluctuation (1), Generalized Method of Moments (GMM) (28), Global financial market
integration (118), Global investing (119), Goal programming (57), Gold (4, 92), Goodness
of fit (108), GPU (39), Great Recession (29), Grouping Method (37), Growth Rate (97),
GRS test (10), Gumbel copula (73), GV-Spread (40), GVIX Index (40), Habit formation
(48), Hazard model (78, 126), Heckman’s Two-Stage Estimation (111), Hedge Fund (108,
125), Hedge Funds Performance (91), Hedge ratio (11), Hedging (86), Herding Behaviors
(113), Heteroskedasticity (52), High frequency data (39), High-frequency data (29), High-
frequency jumps (29), High-Minus-Low (19), High-ranked analysts (31), Holt/Winters
Exponential Smoothing (112), Holt–Winters forecasting model (26), and Hyper-parameter
optimization (20).
Identification (28), Identification problem (116), Idiosyncratic standard deviation (78),
Idiosyncratic risk (98), Implied risk-neutral distribution (42), Implied volatility (39, 40),
Implied volatility Smile/skew/surface (33), Implied volatility spread (103), Incomplete
market (24), Indifference curve (80), Indirect effect (130), Industry portfolios (121), Infer-
ence (72), Information fusion (18), Initial Public Offerings (67), Instrumental Variable
Method (37), Instrumental Variables (IV) (28), Insurance premium (15), Integrated pro-
cess (72), Intelligent Portfolio Theory (43), Intention (71), Interconnectedness (9), Interest-
rate anticipation swap (88), Intermarkert-spread swap (88), Internal Capital Market (46),
Internal control weakness (21), International CAPM (122), International finance (12),
International portfolio (13), International stock market linkage (36), Internet stock (130),
Intertemporal (12), Intertemporal CAPM (122), Intervention (6), Inverse Fourier Trans-
form and Poisson Process (34), Investment (10, 13, 121), Investment banks (76), Invest-
ment constraints (13), Investment decision (116), Investment Eq. (37), Investment Horizon
(68), Investment horizons (4), Investor sentiment (42), IPO Issuance and Performance (67),
Irregular component (26), and Itô’s lemma (27).
Japan (21), Jump (52), Jump diffusion (110), Jump risks (29), Jump spillover (29),
Jump-diffusion (41), Kalman filter (53, 64), Kernel function selection (20), Kernel Smooth-
ing (108), Key borrower (9), KMV-Merton model (78, 126), K-nearest neighbours (101),
Korea (21), Kruskal–Wallis Test (105), Kurtosis (7), Lagging indicators (26), Lagran-
gian calculus maximization (81), Lagrangian multipliers (82), Lagrangian objective func-
tion (80), Large-sample theory (115), Leading indicators (26), Lease Accounting (105),
13
Leverage effect (58), Linear programming (7, 24, 81), Linear utility function (80), Linear-
equation system (77), Liquidity risk (10), Liquidity shocks (121), Liquidity-based CAPM
(122), LISREL (35), LISREL Method (37), Logistic Equation (97), Logistic regression
(126), Logit (21), Logit model (78), Logit regression (1), Log-normal distribution (85),
Lognormal distribution method (102), Long call (83), Long memory (23, 58), Long Put
(83), Long Straddle (83), Long Vertical (Bull) Spread (83), Loss aversion (48), Low inter-
est rate environment (61), Lower bound (7), and LSTM (119).
Machine learning (101, 117, 119, 127), Make-to-Stock Inventory (46), Management
earnings forecasts (2), Managerial implications (131), Mann–Whitney Test (105), Mar-
ket beta (79), Margrabe Model (34), Market model (79, 81), Market portfolio (10), Mar-
ket risk (38), Markovian Models (46), Markowitz modern portfolio theory (14), Math-
ematical Programming Method (37), Matlab (39), MATLAB Approach (106), Matrices
(77), Maturity (88), Maximum likelihood estimation (50, 73), Maximum Likelihood
Estimation (MLE) (50), Maximum likelihood estimator (65, 99), Maximum Likeli-
hood Method (37), Maximum mean extended-gini coefficient hedge ratio (11), Mean
Reverting Process (97), Mean squared error (26), Mean–variance capital asset pricing
(47), Mean–variance efficiency (93), Measurement Error (28, 37, 62, 75, 98), Mental
accounting (16), Mergers (116), Mergers and acquisitions (76), Merton distance model
(126), MINIMAX goal programming (57), Minimum generalized semi-variance hedge
ratio (11), Minimum value at risk hedge ratio (11), Minimum variance hedge ratio (11),
Minimum variance unbiased estimator (65), Mixture copula (38), Mixture Kalman Fil-
ter (64), Mobile banking (71), Model of Ang and Piazzesi (2003) (61), Model of Joslin
et al. (2013) (61), Model of Joslin et al. (2011) (61), Moderating effect (16), Momentum
(10, 19, 121), Momentum factor (103), Momentum Strategies (94, 95), Money market
liquidity premium (121), Moral hazard (15), Moving average (87), Multi variable spew-
normal distribution method (11), Multi-Factor Risk model (119), Multinomial Logit
Model (111), Multiperiod dynamic CAPM (99), Multiple criteria and multiple con-
straint level (MC2) linear programming (54), Multiple criteria linear programming data
mining (21), Multiple discriminant analysis (21), Multiple factor transfer pricing model
(54), Multiple-index model (81), Multivariate Discriminant Analysis (MDA) (78), Mul-
tivariate F test (10), Multivariate GARCH (129), Multivariate log-normal distribution
(85), Multivariate normal distribution (85), Multi-factor and multi-indicator (MIMIC)
model (1), and Mutual fund (108).
Natural Language Generation (119), Natural language processing (21), Net Charge-Off
Rates (63), Neural network (101), Neural Network Model (112), NLG (119), Non para-
metric tests (28), Nonaudit fees (22), Noncentral Chi Square Distribution (109), Nonlinear
regression (1), Noncentral t distribution (65, 69), Non-Financial Information (130), Non-
normal Data (113), Non-parametric (24), Non-parametric method (120), Non-parametric
regression (118), Non-systematic risk (79), Normal distribution (85), N-Period OPM (84),
Numerical experiment (51), Odd-Lot theory (87), OLS (45), Omega model (104), Omit-
ted Variables (28), One-period OPM (84), Operating profitability (121), Operational risk
(38), Optimal capital structure (41), Optimal financial policy (49), Optimization (49), Opti-
mum mean variance hedge ratio (11), Optimum mean MEG hedge ratio (11), Option (128),
Option bound (7, 85), Option bounds (24), Option price (103), Option pricing (33, 109),
Option pricing model (51), Options pricing (27), and Out-of-Sample Forecasts (63).
Panel Data (28), Panel vector auto-regressions (60), Parallel computing (39), Paramet-
ric method (120), Partial adjustment (100), Partial Adjustment Model (97), Partial Least
Squares (63), Particle Filter (64), Partition function (8), Past stock returns (103), Path anal-
ysis (1, 130), Payout policy (96), Payout Ratio (97), PCA (Principal components analysis)
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(61), PCDTSM (Principal component-based DTSM) (61), Peer Benchmarking (45), Per-
centage of moving average (26), Performance Manipulation (91), Performance measure
(62), Phase-type distribution (41), Planning horizon (49), Poisson regression (1), Policy
(15), Policy analyses (124), Portfolio (69), Portfolio construction (30), Portfolio manage-
ment (30), Portfolio optimization (30), Portfolio selection (104), Portfolio theory (30),
Post-Earnings-Announcement Drift (94), Post-earnings-announcement drifts (53), Power
index (9), Predictability (107), Price pressure (103), Principal Component Analysis (63),
Principal components model (118), Probability integral transform (73), Probability limit
for regression coefficient (62), Probit (21), Probit Model (111, 126), Probit regression (1),
Product market competition (45), Production cost (90), Profitability (10), Prospect theory
(48), Protective Put (83), Pure-yield-pickup swap (88), Put option (84), Put options (89),
Put-call parity (83), Put–call parity (42), and Python (101).
Quadratic cost (100), Quality-Minus-Junk (19), Quantile (25, 72), Quantile Co-inte-
grated (92), Quantitative analysis (18), Random Coefficient Model (114), Random coef-
ficient method (11), Random Effects (RE) (28), Realized variation (33), Recurrent survival
analysis (59), Reduced-form (100), Regime-switching GARCH method (11), Regret avoid-
ance (16), Related Mergers (116), Relative risk aversion distribution (65), Rent-seeking
hypothesis (32), Revenue Surprises (94), Rho ( 𝜌 ) (86), Risk Assessment (127), Risk aver-
sion (80), Risk dependence (38), Risk integration (38), Risk management (38, 129), Risk-
free rate (82), Risk-mitigating effect (59), Risk-return tradeoff (58), Risk-shifting (59),
RNN (119), Robo-advisor (117), Robust Hausman (28), Robust standard errors that incor-
porate firm-level clustering (45), and Robust-Minus-Weak (19).
Sample estimators (115), Sample properties (115), Sample Selection Bias (111), Sam-
ple Size (68), Sarbanes–Oxley (131), Scoring system (119), Seasonal component (26),
Seasonal index (26), Seasonal index method (26), Sector & Location Rotation (43), Secu-
rity market line (122), Seemingly Unrelated Regression (SUR) (25, 100), Self-Control
(16), Sell-side analysts (55), Semi-parametric (24), Semi-parametric method (7, 120),
Semi-parametric regressions (118), Sentiment analysis (18), Sequential Conversion (59),
Shape parameter (70), Sharpe (68), Sharpe hedge ratio (11), Sharpe performance measure
(82), Sharpe ratio (74), Short Call (83), Short Put (83), Short sales allowed (82), Short
sales not allowed (82), Short selling (80, 104), Short Straddle (83), Short Vertical (Bear)
Spread (83), Significance Identification (105), Simple summation approach (38), Simula-
tion (7, 98), Simulation and Bootstrap techniques (28), Simultaneous econometric models
(5), Simultaneous Equations (100), Simultaneous equations systems (116), Single-index
model (81), Size (10, 121), Skewness (7), Sklar’s theorem (73), Small-Minus-Big (19),
Social Media (66), Social network (18), Sources of funds (49), Specification Error (97),
Spline Regression Analysis (67), Stale pricing (91), Standardized Student’s t-distribu-
tion (73), State-space Model (64), Static CAPM (122), Statistical Analysis of Response
Behavior (105), Statistics—Sampling (69), Stochastic calculus (102), Stochastic domi-
nance (7, 24), Stochastic volatility (33), Stochastic volatility model (72), Stochastic volatil-
ity model with independent jumps (52), Stock correlation (18), Stock index futures (89),
Stock market liquidity (121), Stock market momentum (103), Stock Market Returns (107),
Stock prediction (18), Stock repurchase (59), Stock Return Comovement (113), Stop-loss
orders (89), Strength Investing (43), Structural breaks (61), Structural change (1), Struc-
tural Credit Risk Model (50), Structural equation model (16), Structural equation modeling
(SEM) (35), Structural hole (31), Student’s t copula (73), Subsidiaries (46), Substitution
swap (88), Supervised learning (101), Supply Chain Financial Management (46), Supply
function (99, 122), Support Vector Machine (44, 101), Support vector machines (20, 21),
SUR (5), Survival analysis (120), Survival model (21), Swapping (88), Synergies (116),
13
Synthetic option (84, 89), Systematic risk (62, 79), Systematic Risk Coefficient (114), and
Systemic importance (9).
TAIEX options (42), Tail dependence (38, 73), Tail risk (58), Tail wag the dog (89),
Tax timing (128), Technical analysis (87, 95, 112), Technologies acceptance (56), Tech-
nology acceptance (71), Temporal Aggregation (114), Test (72), Test power (108), The
investor’s views (14), Theta ( 𝛩 ) (86), Three-stage least squares estimation (3SLS) method
(1), Threshold regression model (22), Time Series Decomposition (112), Time-series
Bootstrapping simulations (55), Time-series data (26), Time-series regression (121), Total
risk (79), Trading Strategies (108), Trading Strategy Portfolio (43), Trading volume (87,
95), Trading-day component (26), Transaction cost (128), Transaction costs (104), Trans-
fer function model (6), Transfer pricing (54), Tree model (15), Trend component (26),
Trend Following, Business & Market Cycle (43), Trend–cycle component (26), Treynor
and Jensen Measures (68), Treynor performance measure (82), Two-pass regression (98),
Two-period OPM (84), Two Stage Least Square method (116), U.S. (21), Unbiased esti-
mation (74), Uncertainty (2), Unrelated Mergers (116), Unscented Kalman Filter (64),
Upper bound (7), User adoption (71), Utility function (80), Utility theory (80), Validity and
reliability (16), Value at Risk (72), Value at Risk model (104), Value-at-Risk (58), Vari-
ance–covariance approach (38), Variance-gamma process (70), Vectors (77), Vega ( 𝜈 ) (86),
VG NGARCH model (70), VIX (40), Volatility clustering (14), Warren and Shelton model
(90), Wavelet coherence (36), Wavelet correlation (36), Wavelet multiple cross-correlation
(36), X-11 model (26), ZLB (Zero lower bound) (61), 2SLS (5), and 3SLS (5).
Appendix 2: Table of contents of the book entitled financial

econometrics, mathematics and statistics (Springer, 2019)
Chapter 1: Introduction To Financial Econometrics, Mathematics, and Statistics
PART I: regression and financial econometrics
Chapter 2: Multiple Linear Regression

Chapter 3: Other Topics in Applied Regression Analysis
Chapter 4: Simultaneous Equation Models
Chapter 5: Econometric Approach to Financial Analysis, Planning, and Forecasting
Chapter 6: Fixed Effects versus Random Effects in Finance Research
Chapter 7: Alternative Methods to Deal with Measurement Error
Chapter 8: Three Alternative Methods in Testing Capital Asset Pricing Model
Chapter 9: Spurious Regression and Data Mining in Conditional Asset Pricing Model
PART II: Time‑Series Analysis and Its Applications
Chapter 10: Time Series: Analysis, Model, and Forecasting

Chapter 11: Hedge Ratio and Time-Series Analysis
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PART III: Statistical Distributions, Option Pricing Model and Risk Management
Chapter 12: The Binomial, Multinomial Distributions, and Option Pricing Model

Chapter 13: Two Alternative Binomial Option Pricing Model Approaches to Derive
Black-Scholes Option Pricing Model
Chapter 14: Normal, Lognormal Distribution, and Option Pricing Model
Chapter 15: Copula, Correlated Defaults, and Credit VaR
Chapter 16: Multivariate Analysis: Discriminant Analysis and Factor Analysis
PART IV: Statistics, Ito’s calculus and option pricing model
Chapter 17: Stochastic Volatility Option Pricing Models

Chapter: 18 Alternative Methods to Estimate Implied Variance: Review and Compari-
son
Chapter 19: Numerical Valuation of Asian Options with Higher Moments in the Under-
lying Distribution
Chapter 20: Ito’s Calculus: Derivation of the Black–Scholes Option Pricing Model
Chapter 21: Alternative Methods to Derive Option Pricing Models
Chapter 22: Constant Elasticity of Variance Option Pricing Model: Integration and
Detailed Derivation
Chapter 23: Option Pricing and Hedging Performance under Stochastic Volatility and
Stochastic Interest Rates
Chapter 24: Nonparametric Method for European Option Bounds
Appendix 3: Table of contents of handbook of financial econometrics

and statistics (Springer, 2015)
1. Introduction
2. Experience, Information Asymmetry, and Rational Forecast Bias
3. An Overview Of Modeling Dimensions For Performance Appraisal Of Global Mutual
Funds
4. Simulation as a Research Tool for Market Architects
5. The Motivations for Issuing Putable Debt: An Empirical Analysis
6. Multi Risk-Premia Model of US Bank Returns: An Integration of CAPM and APT
7. Non-Parametric Bounds for European Option Prices
8. Can Time-Varying Copulas Improve Mean–Variance Portfolio?
9. Determinations of Corporate Earnings Forecast Accuracy: Taiwan Market Experience
10. Market-Based Accounting Research (MBAR) Models: A Test of ARIMAX Modeling
11. An Assessment of Copula Functions Approach in Conjunction with Factor Model in
Portfolio Credit Risk Management
12. Assessing Importance of Time-Series versus Cross-Sectional Changes in Panel Data: A
Study of International Variations in Ex-Ante Equity Premia and Financial Architecture
13. Does Banking Capital Reduce Risk? An Application of Stochastic Frontier Analysis
and GMM Approach
14. Evaluating Long-Horizon Event Study Methodology
15. The Effect of Unexpected Volatility Shocks on Intertemporal Risk-Return Relation
13
1 6. Combinatorial Methods for Constructing Credit Risk Ratings

17. Dynamic Interactions between Institutional Investors and the Taiwan Stock Exchange
Corporation: One-regime and Threshold VAR Models
18. Methods of Denoising Financial Data
19. Analysis of Financial Time-Series using Fourier and Wavelet Methods
20. Composite Goodness-of-Fit Tests for Left Truncated Loss Sample
21. Effect of Merger on the Credit Rating and Performance of Taiwan Security Firms
22. On-/off-the-Run Yield Spread Puzzle: Evidence from Chinese Treasury Markets
23. Factor Copula for Defaultable Basket Credit Derivatives
24. Panel Data Analysis and Bootstrapping: Application to China Mutual Funds
25. Market Segmentation and Pricing of Closed-end Country Funds: An Empirical Analy-
sis
26. A comparison of portfolios using different risk measurements
27. Using Alternative Models and a Combining Technique in Credit Rating Forecasting
— An Empirical Study
28. Can we use the CAPM as an investment strategy? An intuitive CAPM and efficiency
test.
29. Group Decision Making Tools for Managerial Accounting and Finance Applications
30. Statistics Methods Applied in Employee Stock Options
31. Structural Change and Monitoring Tests
32. Consequences of Option Pricing of a Long Memory in Volatility
33. Seasonal aspects of Australian electricity market
34. Pricing commercial timberland returns in the United States
35. Optimal Orthogonal Portfolios with Conditioning Information
36. Multi-factor, Multi-indicator approach to asset pricing: method and empirical evidence
37. Binomial OPM, Black–Scholes OPM and Their Relationship: Decision Tree and
Microsoft Excel Approach
38. Dividend payments and share repurchases of U.S. firms: An econometric approach
39. Term Structure Modeling and Forecasting Using the Nelson-Siegel Model
40. The intertemporal relation between expected return and risk on currency
41. Quantile Regression and Value-at-Risk
42. Earnings Quality and Board Structure: Evidence from South East Asia
43. The Rationality and Heterogeneity of Survey Forecasts of the Yen-Dollar Exchange
Rate: A Reexamination
44. Stochastic Volatility Structures and Intra-Day Asset Price Dynamics
45. Optimal Asset Allocation under VaR Criterion: Taiwan Stock Market
46. Applications of Switching Model in Finance and Accounting
47. Matched Sample Comparison Group Analysis
48. A Quasi-Maximum Likelihood Estimation Strategy for Value-at-Risk Forecasting:
Application to Equity Index Futures Markets
49. Computer Technology for Financial Service
50. Long-Run Stock Return and the Statistical Inference
51. Value-at-Risk Estimation via a Semi-Parametric Approach: Evidence from the Stock
Markets
52. Modeling Multiple Asset Returns by a Time-Varying t Copula Model
53. Internet Bubble Examination with Mean–Variance Ratio
54. Quantile Regression in Risk Calibration
55. Strike Prices of Options for Overconfident Executives
56. Density and Conditional Distribution Based Specification Analysis
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5 7. Assessing the Performance of Estimators Dealing with Measurement Errors

58. Realized Distributions of Dynamic Conditional Correlation and Volatility Thresholds
in the Crude Oil, Gold and Dollar/Pound Currency Markets
59. Pre-IT policy, Post IT policy and the Real Sphere in Turkey?
60. The Determination of Capital Structure: A LISREL Model Approach
61. Evidence on Earning Management by Integrated Oil and Gas Companies
62. A comparative study of two models SV with MCMC algorithm
63. Internal Control Material Weakness, Analysts’ Accuracy and Bias, and Brokerage
Reputation
64. What Increases Banks’ Vulnerability to Financial Crisis: Short-Term Financing or
Illiquid Assets?
65. Accurate Formulae for Evaluating Barrier Options with Dividends Payout and the
Application in Credit Risk Valuation
66. Pension Funds: financial econometrics on the herding phenomenon in Spain and the
United Kingdom
67. Estimating the Correlation of Asset Returns: A Quantile Dependence Perspective
68. Multi-Criteria Decision Making for Evaluating Mutual Funds Investment Strategies
69. Econometric Analysis of Currency Carry Trade
70. Evaluating the Effectiveness of Futures Hedging
71. Analytical bounds for Treasury bond futures prices
72. The Rating Dynamics of Fallen Angels and Their Speculative Grade-Rated Peers:
Static versus Dynamic Approach
73. The roles of compensation scheme of portfolio managers, wealth and supply con-
straints, and the relative risk aversion of traders in the creation and control of specula-
tive bubbles
74. Range Volatility: A Review of Models and Empirical Studies
75. Business Models: Applications to Capital Budgeting, Equity Value, and Return Attri-
bution
76. VAR Models: Estimation, Inferences, and Applications
77. Model Selection for High-Dimensional Problems
78. Hedonic Regression Models
79. Optimal Payout Ratio under Uncertainty and the Flexibility Hypothesis: Theory and
Empirical Evidence
80. Modeling Asset Returns with Skewness, Kurtosis, and Outliers
81. Alternative Models for Estimating the Cost of Equity Capital for Property/Casualty
Insurers: Combined Estimator Approach
82. A VG-NGARCH Model for Impacts of Extreme Events on Stock Returns
83. Risk-Averse Portfolio Optimization via Stochastic Dominance Constraints
84. Implementation Problems and Solutions in Stochastic Volatility Models of the Heston
Type
85. Stochastic Change-Point Models of Asset Returns and Their Volatilities
86. Unspanned Stochastic Volatilities and Interest Rate Derivatives Pricing
87. Alternative Equity Valuation Models
88. Time Series Models to Predict the Net Asset Value (NAV) of an Asset Allocation
Mutual Fund VWELX
89. Discriminant Analysis and Factor Analysis: Theory And Method
90. Implied Volatility: Theory and Empirical Method
91. Measuring Credit Risk in a Factor Copula Model
92. Instantaneous Volatility Estimation by Nonparametric Fourier Transform Methods
13
9 3. A Dynamic CAPM with Supply Effect Theory and Empirical Results

94. A Generalized Model for Optimum Futures Hedge Ratio
95. Instrument Variable Approach to Correct for Endogeneity in Finance
96. Application of Poisson Mixtures in the Estimation of Probability of Informed Trading
97. CEO stock options and analysts’ forecast accuracy and bias
98. Option Pricing and Hedging Performance under Stochastic Volatility and Stochastic
Interest Rates
Appendix 4: Essentials of excel, excel VBA, SAS and Minitab

for statistical and financial analysis (Springer, 2016)
Part A: statistical analysis
1. Introduction
2. Data Collection, Presentation, and Yahoo Finance
3. Histograms and the Rate of Returns of JPM and JNJ
4. Numerical Summary Measures on Rate of Returns of Amazon, Walmart, and the S&P
500
5. Probability Concepts and Their Analysis
6. Discrete Random Variables and Probability Distributions
7. The Normal and Lognormal Distributions
8. Sampling Distributions and Central Limit Theorem
9. Other Continuous Distributions
10. Estimation
11. Hypothesis Testing
12. Analysis of Variance and Chi Square Tests
13. Simple Linear Regression and the Correlation Coefficient
14. Simple Linear Regression and Correlation: Analyses and Applications
15. Multiple Linear Regression
16. Residual and Regression Assumption Analysis
17. Nonparametric Statistics
18. Time Series: Analysis, Model, and Forecasting
19. Index Numbers and Stock Market Indexes
20. Sampling Surveys: Methods and Applications
21. Statistical Decision Theory
Part B: advanced applications of microsoft excel programs in financial analysis
2 2. Introduction to Excel Programming

23. Introduction to VBA Programming
24. Professional Techniques Used in Excel and Excel VBA Techniques
25. Binomial Option Pricing Model Decision Tree Approach
26. Microsoft Excel Approach to Estimating Alternative Option Pricing Models
27. Alternative Methods to Estimate Implied Variance
28. Greek Letters and Portfolio Insurance
29. Portfolio Analysis and Option Strategies
30. Simulation and Its Application
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Part C: applications of simultaneous equation in finance research: methods

and empirical results
31. Application of Simultaneous Equation in Finance Research: Methods and Empirical

Results
32. Hedge Ratios: Theory and Applications
31. Application of Simultaneous Equation in Finance Research: Methods and Empirical
Results
32. Hedge Ratios: Theory and Applications
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Review of Quantitative Finance and Accounting (2020) 54:1529–1578

Financial econometrics, mathematics, statistics, and financial

Published online: 22 April 2020

Keywords Financial econometrics · Financial mathematics · Financial statistics · Financial

JEL Classification G1 · G2 · G3 · G4

* Cheng Few Lee

2.1 Important issues related to single equation estimations

Heteroscedasticity, specification error, measurement error, skewness and kurtosis effect,

Specification error occurs when there is a missing variable in a regression analysis. We

2.1.3 Measurement errors and asset pricing tests

Measurement error problem involves the existence of imprecise independent variables in

2.1.4 Skewness and kurtosis effect

2.1.5 Nonlinear regression and Box–Cox transformation

2.1.8 Probit and logit regression

Path analysis is a straightforward extension of multiple regression. Its aim is to pro-

2.2 Simultaneous equation models

Besides single equation regression models, we can estimate simultaneous equation

2.2.1 Two‑stage least squares estimation (2SLS) method

2.2.2 Seemly unrelated regression (SUR) method

2.2.3 Three‑stage least squares estimation (3SLS) method

2.2.4 Disequilibrium estimation method

2.2.5 Generalized method of moments

2.3 Panel data analysis

2.3.1 Fixed effect model

2.3.2 Random effect model

2.3.3 Clustering effect model

2.4 Alternative methods to deal with measurement error

2.4.2 Multi‑factor and multi‑indicator (MIMIC) model

2.4.3 Partial least square method

4.2 Principle components and factor analysis

4.3 Non‑parametric and semi‑parametric analyses

4.5 Fourier transformation method

5 Machine learning and financial technology

5.1 Classification of machine learning

5.2 Machine learning applications

5.3 Financial technology and other computer science tools used for finance

Financial technology (FinTech) can generally be classified as BankingTech, PayTech,

6 Applications of financial econometrics, mathematics, statistics,

Methodologies used in asset pricing research include heteroskedasticity, specification error,

Methodologies used in corporate finance research include heteroskedasticity, specification

Methodologies used in financial institution research include heteroskedasticity, speci-

6.4 Investment and portfolio management

Methodologies used in investment and portfolio management include heteroskedasticity,

6.5 Option pricing model

Methodologies used in future and hedging research include heteroskedasticity, specifica-

Methodologies used in mutual fund research include heteroskedasticity, specification error,

6.8 Credit risk modeling

Methodologies used in credit risk modeling include heteroskedasticity, specification error,

6.8.2 Machine learning approach

7 Overall discussion of my experience in writing textbooks and editing

In previous sections, we have discussed financial econometrics, mathematics, statistics,

(1) Financial Accounting and Auditing

The titles of these chapters that belong to this group are:

• Chapter 2: Do Managers Use Earnings Forecasts to Fill a Demand They Perceive

• Chapter 22: Tradeoff Between Reputation Concerns and Economic Dependence for

(2) Mutual Funds and Hedge Funds

The titles of these chapters that belong to this group are:

• Chapter 12: Application of Intertemporal CAPM on International Corporate Finance

• Chapter 12: Application of Intertemporal CAPM on International Corporate Finance

• Chapter 56: Acceptance of New Technologies by Employees in Financial Industry

(4) Asset Pricing

The titles of these chapters that belong to this group are:

• Chapter 10: Application of the Multivariate Average F Test to Examine Relative

The titles of these chapters that belong to this group are:

2.1 Important issues related to single equation estimations

2.1.3 Measurement errors and asset pricing tests

2.1.4 Skewness and kurtosis effect

2.1.5 Nonlinear regression and Box–Cox transformation

2.1.8 Probit and logit regression

2.2 Simultaneous equation models

2.2.1 Two‑stage least squares estimation (2SLS) method

2.2.2 Seemly unrelated regression (SUR) method

2.2.3 Three‑stage least squares estimation (3SLS) method

2.2.4 Disequilibrium estimation method

2.2.5 Generalized method of moments

2.3 Panel data analysis

2.3.1 Fixed effect model

2.3.2 Random effect model

2.3.3 Clustering effect model

2.4 Alternative methods to deal with measurement error

2.4.2 Multi‑factor and multi‑indicator (MIMIC) model

2.4.3 Partial least square method

4.2 Principle components and factor analysis

4.3 Non‑parametric and semi‑parametric analyses

4.5 Fourier transformation method

5 Machine learning and financial technology

5.1 Classification of machine learning

5.2 Machine learning applications

5.3 Financial technology and other computer science tools used for finance

6 Applications of financial econometrics, mathematics, statistics,

6.4 Investment and portfolio management

6.5 Option pricing model

6.8 Credit risk modeling

6.8.2 Machine learning approach

7 Overall discussion of my experience in writing textbooks and editing

8 My innovated applications of financial econometrics, statistics,

8.3 Financial mathematics and finance theory

8.4 New CAPM research

9 Summary and concluding remarks