THE ECONOMETRICS OF FINANCIAL MARKETS

Abstract

This book is an ambitious effort by three well-known and well-respected scholars to fill an acknowledged void in the literature-a text covering the burgeoning field of empirical finance. As the authors note in the preface, there are several excellent books covering financial theory at a level suitable for a Ph.D. class or as a reference for academics and practitioners, but there is little or nothing similar that covers econometric methods and applications. Perhaps the closest existing text is the recent addition to the Wiley Series in Financial and Quantitative Analysis written by Cuthbertson (1996). The major difference between the books is that Cuthbertson focuses exclusively on asset pricing in the stock, bond, and foreign exchange markets, whereas Campbell, Lo, and MacKinlay (henceforth CLM) consider empirical applications throughout the field of finance, including corporate finance, derivatives markets, and market microstructure. The level of anticipation preceding publication can be partly measured by the fact that at least three reviews (including this one) have appeared since the book arrived. Moreover, in their reviews, both Harvey (1998) and Tiso (1998) comment on the need for such a text, a sentiment that has been echoed by numerous finance academics.So, does the book live up to its advance billing? For the most part, the answer is yes. The book is comprehensive and up to date, yet also relatively accessible and self-contained. As such, it no doubt will serve as the basic text for Ph.D. courses in empirical finance throughout the country. It also will find a role as an invaluable reference for academics and practitioners in the field. Finally, those interested in learning more about the study of financial markets will find it an excellent introduction to the relevant issues, applications, and methodologies.

Event Clustering and Abnormal Returns: Reassessing the Informational Value of Bets

“…We use a standard event study methodology (Campbell et al 1997) to examine the behavior of teams' stock returns around matches, i.e., the events. The response variable used in all regression models is Ar i .…”

“…However, previous literature on short-term event studies (Campbell et al 1997) points out that results are virtually unaffected by the choice of the model. This is especially true in our case, because the stocks considered belong to the same sector and are quite homogeneous.…”

Špekulativno trgovanje finansijskim instrumentima na tržištu kapitala Republike Srpske

“…Ako je β>1, cijena date hartije će biti volatilnija (više promjenjivija) u odnosu na indeks ili, ukoliko je β<1, tada će cijena hartije biti manje promjenjivija u odnosu na indeks. Beta koefi cijent se računa regresionom analizom promjena u cijeni date hartije i promjena vrijednosti datog indeksa, odnosno na sljedeći način [Campbell J., Lo A., MacKinlay C. 1997 Dvije hartije, BIRA-R-A i RNAF-R-A, imaju visoke vrijednosti beta koefi cijenta, preko 1,50, što znači da su cijene njihovih akcija visoko volatilne u odnosu na opštu tendenciju kretanja indeksa. Sedam hartija imaju niske vrijednosti beta koefi cijenta, što ukazuje da je njihova cjenovna volatilnost manja u odnosu na volatilnost indeksa.…”

Uncovering the U.S. Term Premium: An Alternative Route

“…The interest-rate model employed, for instance, by Cox, Ingersoll, and Ross (1985), is stationary and mean-reverting I(0), whereas Campbell and Shiller (1987) assume a unit-root. The drawback of I(0) models is that they imply long-rates which are not volatile enough (see Shiller (1979)) whereas the problem with I(1) models is that they imply that the term premium necessarily increases (or decreases) forever as the bond maturity rises (see Campbell, Law, and MacKinlay (1997)). In alternative richer frameworks, Kozicki and Tinsley (2001) propose a model with shifting endpoints for the short-rate which is able to fit the term structure, whereas Ang and Bekaert (2002) propose regime-switching models for the short-rates.…”