SYLLABUS (PHD EMPIRICAL FINANCE F625 SPRING 1998)

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ADMINISTRATIVE DETAILS

The course reviews prominent empirical issues in finance. The topics (I. through X.) are listed below (see reading list for more details).

We meet once per week, (3:00-5:30 Thursday SPEA270). The first class is introductory. Each remaining class will typically be composed of the following sections (some classes may differ):

  1. Individual student presentations of two papers.
  2. Group discussion of a third paper (the "paper of the day").
  3. A lecture covering unanswered questions raised the previous week, and reviewing the next week's topic.
  4. Discussion (if need be) of the current problem set.

Individual Student Presentations
Each student will make a presentation once every two weeks. To ensure discussion and interaction, every student must read the papers to be presented prior to class (approx one hour per paper for non-presenters).

The "Paper of the Day."
The assigned "paper of the day" will be discussed as a group. You must spend at least one hour studying this paper. As you read, you should have a pencil in your hand and go through and identify interesting points or questions for class discussion.

Problem Sets
There are four problem sets. Each will allow just under two weeks for completion. Problem sets will typically contain three sections:

  1. A 1-2 page literature review of an assigned area;
  2. An algebraic derivation of a result or model;
  3. Data crunching: you will have to extract data from a computer financial databases (e.g. CRSP, COMPUSTAT, BERKELEY OPTIONS) and perform analyses on them.

Course Project
You will construct a research proposal for an original empirical financial economics study:

  1. You must give a precise research question.
  2. You must describe the research method to be used (including a detailed and precise description of the data to be used).
  3. You must describe the possible outcomes of your research (which must be supported by both sound theoretical arguments and by the results of a simple pilot study using actual data).
  4. Part 1., above, is due 5PM Tue March 3.
  5. A completed Topic Analysis Form is due 5PM Tue March 10 with no exceptions.
  6. The full project is due 5PM Tue April 21 with no exceptions.

The full proposal shall not exceed 25 pages double spaced (including references and appendices). This proposal must conform to Journal of Finance style requirements.

Grading
The grade for the course will be composed of:

  1. 20%: Individual Presentations and Discussion;
  2. 20%: Contribution to Discussion of "Paper of the Day;"
  3. 20%: Problem Sets;
  4. 20%: Course Project;
    1. 1%: research question (due 5PM Tue March 3 - no exceptions);
    2. 4%: topic analysis form (due 5PM Tue March 10 - no exceptions);
    3. 15%: full project(due 5PM Tue April 21 - no exceptions);
  5. 20%: Take Home Final (due 5PM Thur May 7 - no exceptions).
At each class meeting each student will be assigned a grade for the presentation (either 0, 1, or 2) and a grade for the paper of the day (either 0, 1, or 2). A 0 represents no contribution, a 1 represents some contribution and a 2 represents a substantive contribution. In the case of the individual presentations, both presenters and audience are graded for their contribution to class learning.

Sign-up right now for these computer accounts (unless you already have them)
Please go to the following web page ASAP: http://iuaccts.ucs.indiana.edu/. You will be asked to enter your network ID and password (see the doctoral office if you do not have these). Once past the password, please follow these steps.

  1. Choose "Create accounts on UCS computers (e.g., e-mail, file lockers)"
  2. Choose "Research-only Systems"
  3. Choose "STARRS Research Cluster" (you will have to fill in a form and give my email address as a reference: tcrack@indiana.edu)
  4. Once the STARRS request is sent, go back and also request a "Cobalt" account from the research-only menu (again you will need to use my email address as a reference).

Recommended Book
The recommended (but not required) text for the course is (CLM for short): Campbell, John Y., Andrew W. Lo and A. Craig MacKinlay, 1997, The Econometrics of Financial Markets, Princeton University Press: Princeton New Jersey (ISBN: 0-691-04301-9). CLM is on reserve in the SPEA library.

Incompletes
No Incompletes will be given in this course.

Timothy Crack
BU356B
812.855.2695
tcrack@indiana.edu

TOPICS LIST (PHD EMPIRICAL FINANCE F625 SPRING 1998)

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I. WRITING AND THESIS

II. RANDOM CHARACTER OF STOCK MARKET PRICES

III. TESTING ASSET PRICING MODELS

IV. FIXED INCOME SECURITIES & INTEREST RATES

V. DERIVATIVES

VI. MARKET (MICRO) STRUCTURE

VII. PORTFOLIO PERFORMANCE EVALUATION

VIII. CORPORATE TOPICS

IX. REALITY CHECK: EMPIRICAL PROBLEMS AND BIASES

X. OTHER TOPICS




SCHEDULE (PHD EMPIRICAL FINANCE F625 SPRING 1998)

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DateLecture TopicsPaper Topics
Jan 15
  • Introduction
  • Distribution of Stock Prices
  • Random Walk
  • Writing Empirical Articles
  • PhD Thesis in Finance
#1 (Bem), #2 (Long), #3 (Alpert and Eyssell), #4 (Wills)
Jan 22
  • Volatility
  • Efficient Markets
  • Investment
(PS1 Handed Out)
  • Distribution of Stock Prices
  • Random Walk
#5 (Fielitz and Rozelle), #8 (Kendall), #9 (Lo and MacKinlay), #10 (Samuelson)
Jan 29
  • Event Studies
  • Anomalies
  • Abnormal Performance
  • Investment
  • Volatility
  • Efficient Markets
#7 (Lakonishok et al), #15 (French and Roll), #11 (Fama), #6 (Jones et al)
Feb 3 (PS1 Due 5PM)
Feb 5
  • Mean Reversion
  • ARCH
(PS2 Handed Out)
  • Event Studies
  • Abnormal Performance
#12 (Asquith and Mullins), #14 (Muscarella and Vetsuypens), #13 (Brown and Warner), #16 (Lyon et al)
Feb 12
  • GMM
  • Testing Asset Pricing Models
  • Mean Reversion
  • ARCH
#17 (Richardson), #19 (Bera et al), #18 (Bera and Higgins), #28 (*) (Mullens)
Feb 17 (PS2 Due 5PM)
Feb 19
  • CAPM
(PS3 Handed Out)
  • GMM
  • Testing Asset Pricing Models
#20 (MacKinlay and Richardson), #21 (Richardson and Smith), #22 (Ogaki), #26 (Ferson)
Feb 26
  • APT
  • CAPM
#24 (Fama and Macbeth), #25 (Ferguson and Shockley), #23 (Fama and French), #27 (Gibbons et al)
Mar 3 (Project Q Due 5PM)
Mar 3 (PS3 Due 5PM)
Mar 5
  • Present Value Relations
  • Term Structure
  • APT
#30 (Shanken), #29 (Dybvig and Ross), #32 (CLM - 8), #31 (Shanken)
Mar 10 (Topic Analysis Due 5PM)
Mar 12
  • Derivatives
  • Term Structure
  • PV Relations
  • Psychology (*)
#34 (Ait-Sahalia), #35 (Pearson and Sun), #33 (CLM - 7), #59(*) (Khaneman and Tversky)
Mar 26
  • Market (Micro) Structure
(PS4 Handed Out)
  • Derivatives
#36 (Black and Scholes), #37 (Minton), #38 (Tufano), #39 (Xu and Taylor)
Apr 2
  • Performance Evaluation
  • Market (Micro) Structure
#40 (Huang and Stoll), #42 (Manaster and Mann), #41 (Hausman et al), #60 (Anon.)
Apr 7 (PS4 Due 5PM)
Apr 9
  • Management Compensation
  • IPO's
  • Dividend Policy
  • Performance Evaluation
  • Accounting Income Numbers
#43 (Brown et al), #44 (Chen and Knez), #45 (Grinblatt and Titman), #51 (Ball and Brown)
Apr 16
  • Empirical Issues
  • Management Compensation
  • IPO Performance
  • Dividends
#46 (Cotter and Zenner), #48 (Ritter), #50 (Lintner) and #49 (Benzartzi et al), #47 (Chevalier)
Apr 21 (Project Due 5PM)
Apr 23
  • Other Topics
  • Return Biases
  • Thin Trading and Beta
  • Data Snooping
#52 (Blume and Stambaugh), #55 (Bartholdy and Riding), #53 (Lo and MacKinlay), #54 (Roll)
Apr 30
  • Summary
(Take Home Final Handed Out)
  • Chaos
  • Nonparametric (Option Pricing)
  • Bayesian (Predictability)
#56 (Hsieh), #58 (Hutchinson et al), #57 (Kandel and Stambaugh)
May 7 (Take home Final Due 5PM)

READING LIST (PHD EMPIRICAL FINANCE F625 SPRING 1998)

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NOTE:

I. WRITING AND THESIS

II. RANDOM CHARACTER OF STOCK MARKET PRICES

III. TESTING ASSET PRICING MODELS

IV. FIXED INCOME SECURITIES & INTEREST RATES

V. DERIVATIVES

VI. MARKET (MICRO) STRUCTURE

VII. PORTFOLIO PERFORMANCE EVALUATION

VIII. CORPORATE TOPICS

IX. REALITY CHECK: EMPIRICAL PROBLEMS AND BIASES

X. OTHER TOPICS

REFERENCE WORKS