The Econometrics of Financial Markets

Book Description

The past twenty years have seen an extraordinary growth in the use of quantitative methods in financial markets. Finance professionals now routinely use sophisticated statistical techniques in portfolio management, proprietary trading, risk management, financial consulting, and securities regulation. This graduate-level textbook is intended for PhD students, advanced MBA students, and industry professionals interested in the econometrics of financial modeling. The book covers the entire spectrum of empirical finance, including: the predictability of asset returns, tests of the Random Walk Hypothesis, the microstructure of securities markets, event analysis, the Capital Asset Pricing Model and the Arbitrage Pricing Theory, the term structure of interest rates, dynamic models of economic equilibrium, and nonlinear financial models such as ARCH, neural networks, statistical fractals, and chaos theory.

Each chapter develops statistical techniques within the context of a particular financial application. This exciting new text contains a unique and accessible combination of theory and practice, bringing state-of-the-art statistical techniques to the forefront of financial applications. Each chapter also includes a discussion of recent empirical evidence, for example, the rejection of the Random Walk Hypothesis, as well as problems designed to help readers incorporate what they have read into their own applications.

Professors: A supplementary Solutions Manual is available for this book. It is restricted to teachers using the text in courses. For information on how to obtain a copy, refer to: http://pup.princeton.edu/solutions.html

Customer Reviews:

Econometrics of Financial Markets.......2007-05-07

Fresh look at the beating heart of the financial markets by one of the best people in the field.

CML: An Unnecessary Addition to a Saturated Literature.......2007-01-30

I was also skeptical of the negative reviews surrounding this book ("CML"). However after buying and reading this book, I now believe they had merit.

Simply stated, this book does not cater to its readers. If you have the prerequisites that the authors demand, then this book is comprehensive but ultimately below what ought to challenge you. And if you don't, then I guarantee you will be very lost. Unlike many similar volumes, CML is not self-contained (nor does it claim to be). And unlike many books that build a self-contained "model" of asset pricing dynamics, CML is full of literature-specific jargon and inconsistent notation. In fact much of this notation changes intrachapter.

Suppose you are a reader at the level CML insist their readers be. Then all the better to spend more time understanding Duffie's "Dynamic Asset Pricing," or Cochrane's veritable tour-de-force, "Asset Pricing." Both books are more contemporary and also at a better level for the readers CLM had in mind.

If you don't have the requisite knowledge, please ignore CML and try Luenenberger and Casella/Berger, as well as Greene for econometric-specific stats, Hamilton for time-series. You will not regret these purchases.

CML claims to fill a gaping hole in the secondary literature. But in reality, CML sits right in the middle of two types of readers, and caters effectively to none.

Last quartile on the subject.......2006-11-05

This book used to be a must the first time it has been published but after ten years it is getting old and the topic is now better covered by some others authors. The arch/garch section is really weak and this book by its sole is not enough to implement advanced models.
The authors also forgot to include practical implementation of the models with Splus or Matlab or whatever language, which is now almost a standard in many financial engineering related books.

An oldie but goodie.......2006-03-10

For the past ten years, this boook was the standard of financial time series and cross sectional analysis. There are several more recent books on the subject, but as the first good book in the field, it is still keeping up. Lot of the derivation in the book is a bit spotty - but that is expected at this level of sophistication and originality. There are some frustrating parts in the book, but if you cannot chew through that material, you should probably read an easier book.

Absolutely useless.......2006-03-09

I'm not sure what the audience for this extremely poorly written book is. Is it graduate-level students? If so, this book will drive them totally crazy and depressed, thanks to its confusing structure, lack of contextual motivation for the topics covered, and nonsensical, semi-rigorous mathematical treatment of the subject. Is it "quant" practitioners? If so, it'll leave them more confused and pessimistic about their trade than ever -- or just leave them feeling disappointed and frustrated, which was how I felt when I tried to read this book.

This book is so bad it serves as neither a textbook nor a reference. It has no value whatsoever. Want to know the technical details of VAR models and when to use them and when not to use them? You won't find it here. Ditto for GARCH models. Ditto for ECM models. Ditto for dynamic pricing models. I'm pretty well-grounded in advanced math, statistics, econometrics, and financial economics, and I have to confess I had no clue what the word and sentences and math notations in this book meant. The contents are totally incoherent.

Please do everyone a favor and don't buy this absolutely worthless book, so publishers won't be encouraged to kills trees in order to print such trash.

The 2007-2012 Outlook for Financial Services in Greater China

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The 2007-2012 Outlook for Financial Services in Greater China
Philip M. Parker
Manufacturer: ICON Group International, Inc.
ProductGroup: Book
Binding: Paperback

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ASIN: 0497428628
Release Date: 2006-09-28

Book Description

This study covers the latent demand outlook for financial services across the regions of Greater China, including provinces, autonomous regions (Guangxi, Nei Mongol, Ningxia, Xinjiang, Xizang - Tibet), municipalities (Beijing, Chongqing, Shanghai, and Tianjin), special administrative regions (Hong Kong and Macau), and Taiwan (all hereafter referred to as “regions”). Latent demand (in millions of U.S. dollars), or potential industry earnings (P.I.E.) estimates are given across some 1,100 cities in Greater China. For each major city in question, the percent share the city is of the region and of Greater China is reported. Each major city is defined as an area of “economic population”, as opposed to the demographic population within a legal geographic boundary. For many cities, the economic population is much larger that the population within the city limits; this is especially true for the cities of the Western regions. For the coastal regions, cities which are close to other major cities or which represent, by themselves, a high percent of the regional population, actual city-level population is closer to the economic population (e.g. in Beijing). Based on this “economic” definition of population, comparative benchmarks allow the reader to quickly gauge a city’s marketing and distribution value vis-à-vis others. This exercise is quite useful for persons setting up distribution centers or sales force strategies. Using econometric models which project fundamental economic dynamics within each region and city of influence, latent demand estimates are created for financial services. This report does not discuss the specific players in the market serving the latent demand, nor specific details at the product level. The study also does not consider short-term cyclicalities that might affect realized sales. The study, therefore, is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved.

The 2007-2012 Outlook for Financial Services in India

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The 2007-2012 Outlook for Financial Services in India
Philip M. Parker
Manufacturer: ICON Group International, Inc.
ProductGroup: Book
Binding: Paperback

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ASIN: 0497512858
Release Date: 2006-09-28

Book Description

This study covers the latent demand outlook for financial services across the states, union territories and cities of India. Latent demand (in millions of U.S. dollars), or potential industry earnings (P.I.E.) estimates are given across over 5,100 cities in India. For each city in question, the percent share the city is of it’s state or union territory and of India as a whole is reported. These comparative benchmarks allow the reader to quickly gauge a city vis-à-vis others. This statistical approach can prove very useful to distribution and/or sales force strategies. Using econometric models which project fundamental economic dynamics within each state or union territory and city, latent demand estimates are created for financial services. This report does not discuss the specific players in the market serving the latent demand, nor specific details at the product level. The study also does not consider short-term cyclicalities that might affect realized sales. The study, therefore, is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved.

Microscopic Simulation of Financial Markets: From Investor Behavior to Market Phenomena

Average customer rating:

A good review of the topic - but not enough focus

Microscopic Simulation of Financial Markets: From Investor Behavior to Market Phenomena
Haim Levy , Moshe Levy , and Sorin Solomon
Manufacturer: Academic Press
ProductGroup: Book
Binding: Hardcover

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ASIN: 0124458904

Book Description

Microscopic Simulation (MS) uses a computer to represent and keep track of individual ("microscopic") elements in order to investigate complex systems which are analytically intractable. A methodology that was developed to solve physics problems, MS has been used to study the relation between microscopic behavior and macroscopic phenomena in systems ranging from those of atomic particles, to cars, animals, and even humans. In finance, MS can help explain, among other things, the effects of various elements of investor behavior on market dynamics and asset pricing. It is these issues in particular, and the value of an MS approach to finance in general, that are the subjects of this book. The authors not only put their work in perspective by surveying traditional economic analyses of investor behavior, but they also briefly examine the use of MS in fields other than finance.
Most models in economics and finance assume that investors are rational. However, experimental studies reveal systematic deviations from rational behavior. How can we determine the effect of investors' deviations from rational behavior on asset prices and market dynamics? By using Microscopic Simulation, a methodology originally developed by physicists for the investigation of complex systems, the authors are able to relax classical assumptions about investor behavior and to model it as empirically and experimentally observed. This rounded and judicious introduction to the application of MS in finance and economics reveals that many of the empirically-observed "puzzles" in finance can be explained by investors' quasi-rationality.
Researchers use the book because it models heterogeneous investors, a group that has proven difficult to model. Being able to predict how people will invest and setting asset prices accordingly is inherently appealing, and the combination of computing power and statistical mechanics in this book makes such modeling possible. Because many finance researchers have backgrounds in physics, the material here is accessible.

Key Features
* Emphasizes investor behavior in determining asset prices and market dynamics
* Introduces Microscopic Simulation within a simplified framework
* Offers ways to model deviations from rational decision-making

Customer Reviews:

A good review of the topic - but not enough focus.......2000-12-20

I give it 4 stars for being one of the only books on the topic of microsimulation/agent-based modeling in finance.

The author's research is very interesting and promising. The book reviews similar microsimulation attempts by others.

Book Description

The emphasis of this book is on understanding special characteristics of the financial systems of emerging markets, where the existence of market imperfections such as asymmetric information, adverse selection and moral hazard can cause financial market failures. Considering the Thai stock market as an example, this book provides an econometric study of a typical Asian financial system. Many contemporary techniques and models are used in this study, including simple multivariate regression, multi-factor model, exponential smoothing, Holt Winter’s models, and GARCH type models. The findings of the existence of rational bubbles, anomalies, volatility and other characteristics reveal evidence of inefficiency in the Thai stock market. Based on these results, the book includes justifications for public policies in such economies and makes suggestions for further research areas.

Stochastic Volatility in Financial Markets: Crossing the Bridge to Continuous Time (Dynamic Modeling and Econometrics in Economics and Finance)

Average customer rating:

Compact And a little profound

Stochastic Volatility in Financial Markets: Crossing the Bridge to Continuous Time (Dynamic Modeling and Econometrics in Economics and Finance)
Antonio Mele , and Fabio Fornari
Manufacturer: Springer
ProductGroup: Book
Binding: Hardcover

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ASIN: 0792378423

Book Description

Stochastic Volatility in Financial Markets presents advanced topics in financial econometrics and theoretical finance, and is divided into three main parts. The first part aims at documenting an empirical regularity of financial price changes: the occurrence of sudden and persistent changes of financial markets volatility. This phenomenon, technically termed `stochastic volatility', or `conditional heteroskedasticity', has been well known for at least 20 years; in this part, further, useful theoretical properties of conditionally heteroskedastic models are uncovered. The second part goes beyond the statistical aspects of stochastic volatility models: it constructs and uses new fully articulated, theoretically-sounded financial asset pricing models that allow for the presence of conditional heteroskedasticity. The third part shows how the inclusion of the statistical aspects of stochastic volatility in a rigorous economic scheme can be faced from an empirical standpoint.

Customer Reviews:

Compact And a little profound.......2001-06-09

Just as the title, it is a compact book and not so easy to read. It is a technic book for us to understand how to measure the volitility in the financial market.It takes me a lot of time to read this one.I think it would be better for people to know a little stochastic calculus at first and then try to read it.... It is a good book I think and suits for the one who wants to know the topic more deeply.

The 2007 Report on Financial Services: World Market Segmentation by City

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The 2007 Report on Financial Services: World Market Segmentation by City
Philip M. Parker
Manufacturer: ICON Group International, Inc.
ProductGroup: Book
Binding: Paperback

Econometrics | Economics | Business & Investing | Subjects | Books
ASIN: 0497709597
Release Date: 2006-11-13

Book Description

This report was created for global strategic planners who cannot be content with traditional methods of segmenting world markets. With the advent of a “borderless world”, cities become a more important criteria in prioritizing markets, as opposed to regions, continents, or countries. This report covers the top 2000 cities in over 200 countries. It does so by reporting the estimated market size (in terms of latent demand) for each major city of the world. It then ranks these cities and reports them in terms of their size as a percent of the country where they are located, their geographic region (e.g. Africa, Asia, Europe, Middle East, North America, Latin America), and the total world market. In performing various economic analyses for its clients, I have been occasionally asked to investigate the market potential for various products and services across cities. The purpose of the studies is to understand the density of demand within a country and the extent to which a city might be used as a point of distribution within its region. From an economic perspective, however, a city does not represent a population within rigid geographical boundaries. To an economist or strategic planner, a city represents an area of dominant influence over markets in adjacent areas. This influence varies from one industry to another, but also from one period of time to another. In what follows, I summarize the economic potential for the world\'s major cities for "financial services" for the year 2007. The goal of this report is to report my findings on the real economic potential, or what an economist calls the latent demand, represented by a city when defined as an area of dominant influence. The reader needs to realize that latent demand may or may not represent real sales. For many items, latent demand is clearly observable in sales, as in the case for food or housing items. Consider, however, the category "satellite launch vehicles". Clearly, there are no launch pads in most cities of the world. However, the core benefit of the vehicles (e.g. telecommunications, etc.) is "consumed" by residents or industries within the world\'s cities. Without certain cities, in other words, the market for satellite launch vehicles would be lower for the world in general. One needs to allocate, therefore, a portion of the worldwide economic demand for launch vehicles to both regions and cities. This report takes the broader definition and considers, therefore, a city as a part of the global market.

The 2007 Report on Flexographic Printing of Annual Corporate Reports, Bank Printing, and Other Financial and Legal Printing: World Market Segmentation by City

Average customer rating:

The 2007 Report on Flexographic Printing of Annual Corporate Reports, Bank Printing, and Other Financial and Legal Printing: World Market Segmentation by City
Philip M. Parker
Manufacturer: ICON Group International, Inc.
ProductGroup: Book
Binding: Paperback

Econometrics | Economics | Business & Investing | Subjects | Books
ASIN: 0497742012
Release Date: 2006-11-13

Book Description

This report was created for global strategic planners who cannot be content with traditional methods of segmenting world markets. With the advent of a “borderless world”, cities become a more important criteria in prioritizing markets, as opposed to regions, continents, or countries. This report covers the top 2000 cities in over 200 countries. It does so by reporting the estimated market size (in terms of latent demand) for each major city of the world. It then ranks these cities and reports them in terms of their size as a percent of the country where they are located, their geographic region (e.g. Africa, Asia, Europe, Middle East, North America, Latin America), and the total world market. In performing various economic analyses for its clients, I have been occasionally asked to investigate the market potential for various products and services across cities. The purpose of the studies is to understand the density of demand within a country and the extent to which a city might be used as a point of distribution within its region. From an economic perspective, however, a city does not represent a population within rigid geographical boundaries. To an economist or strategic planner, a city represents an area of dominant influence over markets in adjacent areas. This influence varies from one industry to another, but also from one period of time to another. In what follows, I summarize the economic potential for the world\'s major cities for "flexographic printing of annual corporate reports, bank printing, and other financial and legal printing" for the year 2007. The goal of this report is to report my findings on the real economic potential, or what an economist calls the latent demand, represented by a city when defined as an area of dominant influence. The reader needs to realize that latent demand may or may not represent real sales. For many items, latent demand is clearly observable in sales, as in the case for food or housing items. Consider, however, the category "satellite launch vehicles". Clearly, there are no launch pads in most cities of the world. However, the core benefit of the vehicles (e.g. telecommunications, etc.) is "consumed" by residents or industries within the world\'s cities. Without certain cities, in other words, the market for satellite launch vehicles would be lower for the world in general. One needs to allocate, therefore, a portion of the worldwide economic demand for launch vehicles to both regions and cities. This report takes the broader definition and considers, therefore, a city as a part of the global market.

The 2007 Report on Letterpress Printing of Business Forms Excluding Manifold, Financial, and Legal Forms, Blankbooks, and Looseleaf Forms: World Market Segmentation by City

Average customer rating:

The 2007 Report on Letterpress Printing of Business Forms Excluding Manifold, Financial, and Legal Forms, Blankbooks, and Looseleaf Forms: World Market Segmentation by City
Philip M. Parker
Manufacturer: ICON Group International, Inc.
ProductGroup: Book
Binding: Paperback

Econometrics | Economics | Business & Investing | Subjects | Books
ASIN: 0497729962
Release Date: 2006-11-13

Book Description

This report was created for global strategic planners who cannot be content with traditional methods of segmenting world markets. With the advent of a “borderless world”, cities become a more important criteria in prioritizing markets, as opposed to regions, continents, or countries. This report covers the top 2000 cities in over 200 countries. It does so by reporting the estimated market size (in terms of latent demand) for each major city of the world. It then ranks these cities and reports them in terms of their size as a percent of the country where they are located, their geographic region (e.g. Africa, Asia, Europe, Middle East, North America, Latin America), and the total world market. In performing various economic analyses for its clients, I have been occasionally asked to investigate the market potential for various products and services across cities. The purpose of the studies is to understand the density of demand within a country and the extent to which a city might be used as a point of distribution within its region. From an economic perspective, however, a city does not represent a population within rigid geographical boundaries. To an economist or strategic planner, a city represents an area of dominant influence over markets in adjacent areas. This influence varies from one industry to another, but also from one period of time to another. In what follows, I summarize the economic potential for the world\'s major cities for "letterpress printing of business forms excluding manifold, financial, and legal forms, blankbooks, and looseleaf forms" for the year 2007. The goal of this report is to report my findings on the real economic potential, or what an economist calls the latent demand, represented by a city when defined as an area of dominant influence. The reader needs to realize that latent demand may or may not represent real sales. For many items, latent demand is clearly observable in sales, as in the case for food or housing items. Consider, however, the category "satellite launch vehicles". Clearly, there are no launch pads in most cities of the world. However, the core benefit of the vehicles (e.g. telecommunications, etc.) is "consumed" by residents or industries within the world\'s cities. Without certain cities, in other words, the market for satellite launch vehicles would be lower for the world in general. One needs to allocate, therefore, a portion of the worldwide economic demand for launch vehicles to both regions and cities. This report takes the broader definition and considers, therefore, a city as a part of the global market.

The 2007 Report on Letterpress Printing of Financial and Legal Materials: World Market Segmentation by City

Average customer rating:

The 2007 Report on Letterpress Printing of Financial and Legal Materials: World Market Segmentation by City
Philip M. Parker
Manufacturer: ICON Group International, Inc.
ProductGroup: Book
Binding: Paperback

Econometrics | Economics | Business & Investing | Subjects | Books
ASIN: 0497742888
Release Date: 2006-11-13

Book Description

This report was created for global strategic planners who cannot be content with traditional methods of segmenting world markets. With the advent of a “borderless world”, cities become a more important criteria in prioritizing markets, as opposed to regions, continents, or countries. This report covers the top 2000 cities in over 200 countries. It does so by reporting the estimated market size (in terms of latent demand) for each major city of the world. It then ranks these cities and reports them in terms of their size as a percent of the country where they are located, their geographic region (e.g. Africa, Asia, Europe, Middle East, North America, Latin America), and the total world market. In performing various economic analyses for its clients, I have been occasionally asked to investigate the market potential for various products and services across cities. The purpose of the studies is to understand the density of demand within a country and the extent to which a city might be used as a point of distribution within its region. From an economic perspective, however, a city does not represent a population within rigid geographical boundaries. To an economist or strategic planner, a city represents an area of dominant influence over markets in adjacent areas. This influence varies from one industry to another, but also from one period of time to another. In what follows, I summarize the economic potential for the world\'s major cities for "letterpress printing of financial and legal materials" for the year 2007. The goal of this report is to report my findings on the real economic potential, or what an economist calls the latent demand, represented by a city when defined as an area of dominant influence. The reader needs to realize that latent demand may or may not represent real sales. For many items, latent demand is clearly observable in sales, as in the case for food or housing items. Consider, however, the category "satellite launch vehicles". Clearly, there are no launch pads in most cities of the world. However, the core benefit of the vehicles (e.g. telecommunications, etc.) is "consumed" by residents or industries within the world\'s cities. Without certain cities, in other words, the market for satellite launch vehicles would be lower for the world in general. One needs to allocate, therefore, a portion of the worldwide economic demand for launch vehicles to both regions and cities. This report takes the broader definition and considers, therefore, a city as a part of the global market.

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