Financial Econometrics - Student subdomain for University of Bath金融计量经济学学生的子域的巴斯大学.pptVIP

Financial Econometrics Introduction to Systems Approach Introduction Describe the essential elements of using financial data to do econometrics. Explain the problems associated with simultaneous equation estimation. Describe the order condition and why this is important when estimating a system of equations Introduce the Vector Autoregressive (VAR) approach to estimating simultaneous equation models. Financial Econometrics Financial Econometrics uses all the econometric tools available, to study the properties of variables of interest to them, in particular: Time series properties of assets and asset returns Measurement of Risk Using systems of equations to forecast Assessing the impact of shocks to our variables Efficiency of financial markets Simultaneous Equations When we run a regression using OLS, we assume the explanatory variables are exogenous If the explanatory variables are endogenous, the estimates produced by OLS are biased This means are estimator is not BLUE, therefore are t and F statistics are invalid. This is known as simultaneous equation bias Measures to Overcome the Bias One way to overcome the bias is to form ‘reduced form’ equations, in which we rearrange our model, by a process of substitution, until all the explanatory variables are exogenous. Another method involves using instrumental variable techniques and involves finding exogenous variables to act as instruments for the endogenous variables. A popular way to overcome the problem in the finance literature is to estimate a system of equations, termed a vector autoregressive (VAR) approach. Reduced-Form Equations When producing a reduced form equation, we have to ensure our equation is identified. This means that we can form the coefficients in our reduced-form equation from the system of equations. There are three forms of identification: - Exactly Identified – We can form unique values for the structural coefficients - Under Identified – It is not possible to form the structural co