FINANCIAL ANALYSIS AND FORECASTING
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 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.
- The main concepts of efficiency in finance. Price, return and expectations
- Asset returns and prices in equilibrium
- A test for information arbitrage efficiency
- Fundamental valuation efficiency and rational bubbles
- Risky bond yields
- Interaction between American and European Interest Rates
- Expectations and Central bank communications
- The impact of heterogeneous expectations on price formation
- Bubbles, Human Judgment, and Expert Opinion
- The Fed's monetary policy
- The ECB's monetary policy
- Problems in forecasting
- The degree of integration of economic variables and cointegration
- How to include I(0) and I(1) variables in a regression
- 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 regression methods for highly leptokurtic residuals
- Endogenous regressors and the GMM estimator
Dispense di Financial Analysis and Forecasting, a.a. 2017/2018, on course website and also available from the “Dipartimento di Scienze Economiche e Aziendali” 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.
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
The score is rounded up. In the case of maximum score without rounding, the score is 30 cum laude
Video recording of classes are weekly available at Dropbox. Ask the course teacher for information on how to access