Financial econometrics
Encyclopedia
People working in the finance
industry often use econometric
techniques in a range of activities. For example in support of portfolio management
, risk management
and in the analysis of securities. The sort of topics that financial econometricians are typically familiar with include:
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
industry often use econometric
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
techniques in a range of activities. For example in support of portfolio management
Investment management
Investment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
, risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
and in the analysis of securities. The sort of topics that financial econometricians are typically familiar with include:
- tests of the Random Walk HypothesisRandom walk hypothesisThe random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk and thus the prices of the stock market cannot be predicted. It is consistent with the efficient-market hypothesis....
- event analysis
- the Capital Asset Pricing ModelCapital asset pricing modelIn finance, the capital asset pricing model is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk...
- Arbitrage Pricing TheoryArbitrage pricing theoryIn finance, arbitrage pricing theory is a general theory of asset pricing that holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors or theoretical market indices, where sensitivity to changes in each factor is represented by a...
- the term structure of interest rates
- dynamic models of economic equilibrium
- nonlinear financial models such as ARCHArchAn arch is a structure that spans a space and supports a load. Arches appeared as early as the 2nd millennium BC in Mesopotamian brick architecture and their systematic use started with the Ancient Romans who were the first to apply the technique to a wide range of structures.-Technical aspects:The...
.