Quantitative Methods for Finance

Summary

By its nature, finance is a quantitative discipline, and in this unit, students will learn some of the techniques required to analyse financial data, understand the academic finance literature, and solve financial problems. The econometric models presented in this unit also underpin much of the work conducted by quantitative researchers and analysts in the financial markets, and thus they represent valuable industry knowledge. The emphasis throughout the unit is on applications rather than model derivations, and students will learn how to select and implement their own models using a software package.

Importance to your Programme

This unit covers a range of econometric techniques that are essential knowledge to be able to empirically estimate the approaches to valuing assets and measuring fund performance that are covered concurrently in the TB1 unit Asset Pricing. Quantitative Methods for Finance and Investment is also an important precursor for many of the optional units in TB2 including Investment Management and Financial Modelling. Students will undertake practical applications of the statistical techniques in computer lab sessions using an econometrics package such as Stata or R. Via case studies, they will also learn how to critically evaluate the empirical work in published academic research. As such, the unit will provide them with the skills they need to be able to understand the research literature, choose the most appropriate methods for a given type of problem, and conduct valid econometric analysis when undertaking the investigative part of their dissertations.

Learning Outcomes

After completing this unit successfully, students should be able to:

• Identify, describe and correctly categorise the different types of data sets common in finance;
• Critically assess various empirical methods in finance;
• Evaluate the limitations of such quantitative methods and their potential remedies;
• Critically map different datasets with adequate quantitative methods;
• Implement econometric models using a statistical software package;
• Explain the economic interpretation of empirical findings.

Content

This unit introduces the econometric techniques most commonly used in finance, including multiple regression methods and time-series analysis. Students will learn how to interpret fitted empirical models from statistical and financial perspectives. They will also develop the skills to execute their own econometric models to analyse specific datasets using a software package, preparing them to get the most out of a range of optional units in TB2 and their dissertation.