ANALYSIS AND FORECAST IN FINANCIAL MARKETS
Learning outcomes of the course unit
Knowledge and understanding
- will learn to understand the main current financial and credit phenomena and key measures taken by central banks since 2007.
-will learn to evaluate what is happening on financial and credit markets, and to evaluate central bank interventions.
- will learn to use econometric software for regressions.
- will learn to apply basic econometrics for estimation and prediction of important interest rates Euro-zone.
Applying knowledge and understanding)
- Learning about specialized tools of finance for the analysis of macroeconomic models at advanced level.
-Learning about tools, including institutional tools, to assess the impact of fiscal and monetary interventions and trade policy
-Learning about econometric tools to estimate the relationships between a group of variables
Ability to assess and make independent evaluations about findings of analysis financial sector and central bank actions.
Ability to draw up and present criticism of financial and credit markets, the crisis in these markets and central bank solutions. Students will also become familiar with data handling and econometric processing
Ability to present complex topics concisely using formal language, description and examination of institutional phenomena and econometrics.
Course contents summary
The course is divided into three parts. In the first, financial theories are explained along with their application to the real world. In the second, ECB and Fed policy in recent years of financial crises is examined. The third part deals with the use of econometric tools for estimating and predicting financial variables.
- Information efficiency, efficiency and equilibrium price
- Evaluation efficiency
- Expected return on corporate bonds
- Long-term interest rates in Euro U.S areas.
- The effect of ECB communications on public expectations and the “Euribor future market”
- Difference between bubbles, fads, etc.. The "millennium bubble". Bubbles and the relationship between financial and human psychology
- The impact of heterogeneous expectations on price formation
- The Fed's response to the financial crisis and its current monetary policy
- The ECB's response to the financial crisis and sovereign debt
- Problems in forecasting
- The degree of integration of economic variables and their cointegration
- How to include I(0) and I(1) variables in a regression
- The prediction of money market rates using interest rates structure
- Anticipation of the official rate through the use of economic variables
- The relationship between Euribor and Repo rates
- The forecast of long-long term interest rates in Europe
- VAR models and forecasts
- "limited" dependent variables (the interest rate low bound case)
- Alternative methods for highly leptokurtic residual distributions (analysis of bank financial statements)
- Endogenous regressors and the GMM estimator (money growth and inflation, European and American long-term interest rates)
Dispense di Analisi e Previsioni nel Mercato Finanziario a.a. 2015/2016, on course website and also available from the Department of Economics photocopy service.:
- Giovanni Verga (2016), Dispensa n.1: Il funzionamento dei mercati
- Giovanni Verga (2016), Dispensa n.2: Crisi e politica Monetaria di Fed e BCE
- Giovanni Verga (2016), Dispensa n.3: Stime econometriche applicate alla finanza
- Giovanni Verga (2016), Glossario
For the third part of the course, students should also download from internet the free econometric software GRETL, or alternatively use the econometric software Eviews available on some positions of the library. All data used in the computations are downloadable from the course web page.
Acquisition of knowledge: class lectures including computer econometric analysis
Acquisition of the ability to apply knowledge: computer analysis and discussion of financial and credit issues
Acquisition of judgment:
During the course students will be encouraged to link theory to real world of finance and credit and to discuss the various possible monetary policy interventions to tackle the economic crisis
Acquisition of learning skills:
for each topic students will start from a description of the problem and critically analyse solutions.
Acquisition of technical language:
students will learn the meaning of the terms commonly used by the financial community and central banks
Assessment methods and criteria
Written exam plus computer use of econometric software.
The final mark is out of maximum of 30, and will be calculated as follows:
-Knowledge will be assessed with 2 open questions assessed up to a max. of 7 marks each.
-Ability to apply knowledge and independent judgment will be assessed with an open question on monetary policy and an econometric exercise. (both max. 6 marks)
-The ability to communicate with the appropriate technical language will be assessed through two closed questions (total 4 marks)
Video recording of classes are weekly available at Dropbox. Ask the course teacher for information on how to access.. Some expert seminars will take place.