Course Syllabus

Empirical Finance

Course Details

Course Title Empirical Finance

Course Code
Credit Hours 2
Semester & Year Spring Semester, 2017- 2018
Pre-requisites Econometrics, Statistics, Probability

Contact Hours

Class Type Days Time Classroom

Lecture Tuesday 16:10 pm to 18:00 pm IBS301

Instructor details

Instructor: Jingwen Yu
Room IBS937
Office Hours Wednesday - 12:00 pm to 2:00 pm
Email yujingwen@bfsu.edu.cn
Telephone 18610557798

Course Introduction
This course provides hands-on experience in econometric analysis designed to help students to acquire the
skills necessary to carry out their own empirical research in Finance. Various aspects of empirical research
in economics and finance will be covered, including DID, Panel Data (Fixed Effect and Random Effect),
Event Study and Logit/ Probit model. The statistical package STATA will be used for empirical exercises.

Course Objectives
By the end of this course it is expected that the students will:
1. know the basic principles of econometric analysis;
2. be able to understand both the fundamental techniques and wide array of applications involving linear
regression estimation;
3. be able to understand the assumptions that underpin the classical regression model;
4. know how to apply regression analysis to real-world financial examples and data sets for hypothesis
testing and prediction;
5. be able to recognize and make adjustments for a number of common regression problems.

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6. write their dissertation and lay a solid foundation in financial data analysis

Contribution to Mission & program learning goals

Contribution to ■ Global vision £ Social responsibility £ Cross-cultural competence

Mission £ Multi-region studies ■ Professional Knowledge and Competency
■1. Students have a good command of academic knowledge and are
able to apply academic knowledge to practice.

Contribution to ■ 2. Students have both local and global perspectives.

learning goals:
Finance £ 3. Students have the awareness of ethics and social responsibility.

£ 4. Students have the ability to communicate and conduct business in

a cross-cultural context.

Teaching Methodology
Based on the previously described course objectives, each session aims at acquiring a broad range of
theoretical as well as hands-on knowledge and practicing different skills. Therefore, the structure of each
lecture is different. Lectures and Lab section are included. It is of extreme importance that you read the
obligatory literature and review what have been learned before you attend the session. Since the course’s
success is largely depending on your commitment and input, I expect an active and positive learning
attitude.

Course Materials and Readings

1) Introductory Econometrics: A Modern Approach, Jeffery M. Wooldridge, Fourth Edition, 2009,
Tsinghua University Press.
2) Statistics with Stata, Lawrence C. Hamilton, Chongqing University Press.
3) Handouts and on-line e-sources.

Assessment Method
Your grade will be determined by your performance on individual and teamwork participation. The final
grade will be determined as exhibited in Table 1.

Table 1. Assignments and percentage

Team work 20%
Team project and presentation 20%
Individual work 80%
Homework 30%
Final Report 40%
Participation and attendance 10%
Total 100%
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This class also follows the rules and expectations regarding letter grades provided by Beijing Foreign
Studies University (BFSU) and it also follows the grading curve policies. See Table 2.

Table 2. Number and letter grade correspondence

Points Grades Grade points
90-100 A 4.0
85-89 B+ 3.7
82-84 B 3.3
78-81 B- 3.0
75-77 C+ 2.7
72-74 C 2.3
68-71 C- 2.0
64-67 D+ 1.5
60-63 D 1.0
0-59 F 0

1. Team work

1. Team project and presentation

The class will be divided into teams, each consisting of 4/51 people. We will have sessions in which teams
will work in literature and class exercises. In some occasions these papers and exercises will be discussed in
front of the class. These exercises will be done in teams and they will count as team work and team
participation. There is a description of the activities to be done in teams in the respective sessions.

Note: Although the tendency is for all the team members to have the same grade across the different
activities, I reserve the right to make individual adjustments (higher or lower) for individual team
members depends on effort and participation.

2. Individual work

1. Homework

You need to accomplish homework assignments individually throughout the semester. (Note: This is not a
team effort) Submit the homework to TA on the specified dates. Late homework will not be accepted. Hand
in a legibly written or typed report of the solutions to the homework problems. Do not hand in computer
printouts without any relevant analysis and discussion. We will give credit for neat and professional reports.

Rectifying Scores: After you get your homework or exam report back, you have a week to complain to your
TA about your score. Beyond this period, we will not entertain any complaints. Also during the semester, we
will post all your scores for you to reconcile. You have a week after the scores are posted to inform us of
discrepancies.

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To be determined depending on the number of students registered in the class.
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 2. Final Report

We will have one final referee report during the course. The list of papers will be given to the students to
choose from. Students are supposed to read the related paper and write their own referee reports. Based on
the paper, research proposals and empirical financial analysis are highly encouraged.

3. Participation and attendance

Student participation is an essential part of the learning process. We expect you to be prepared for class
discussions and in-class exercises by having satisfied yourself that you understand what we have done in the
prior classes. You are expected to attend every class session, to arrive prior to the starting time, to remain for
the entire class, and to follow basic classroom etiquette, including having all electronic devices turned off
and put away for the duration of the class and refraining from chatting or doing other work or reading during
class.

Note: Attendance for me means active participation in class as well. So if you are coming to class to do
activities for other classes your attendance grade can be lower even in you are in class.

Course Outline
Week Date Content Assignments
1 3.6 Introduction
2 3.13 Data Management (1) Exercises
3 3.20 Data Management (2)
4 3.27 Statistic Description Group work
5 4.3 Graphics
6 4.10 Financial Data Processing(1)
7 4.17 Financial Data Processing(2) Exercises
8 4.24 Group Presentation (1)
9 5.1 Holidays
Multiple Regression and Practical
10 5.8 Exercises
Issues
11 5.15 Pooled Cross-sectional Data
12 5.22 Difference in Difference Model (1) Exercises
13 5.29 Difference in Difference Model (2)
14 6.5 Panel Data Paper Reading
15 6.12 Group Work and Presentation (2)
16 6.19 Revision
17 Exam Week
18 Exam Week

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Session Details

Session 1：

l Introduction to the course

l Applying econometrics in Finance
l Procedure to conduct an economic research
l Some interesting examples: crime, fertility, lunar phrase and stock return…
l Comparison between statistics softwares: STATA, SAS, R, and SPSS

Students are required to

1. Watch the following video:
https://www.ted.com/talks/steven_levitt_on_child_carseats#t-1052295
2. Discuss what do you think about the lecture by Professor Levitt and how good
can empirical works be.

Session 2:

l Interface of STATA
l Databases
l Use and import data
l Data type
l Creating and managing variables

The learning curve of Stata is gradual because it provides point-and-click buttons as well as
programming options. We start with the interface of Stata. Some common databases will be
introduced, like CSMAR, Wind, CFPS. How to get access to the database and download data is an
important topic during this session. Students will learn to use and import data in STATA, as well as
create new variables, use expressions and etc. Exercises will be provided to enhance the
understanding of the contents.

Session 3:

l Append and merge data

l Use arithmetic operators
l Use math functions
l Use density functions

Session 4:

l Introduction to Statistic Description

l Mean, Variance, Standard Deviation, Min, Max, and more.
l Summarize and tabstat
l Export to Word and Excel.

Statistic Description
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A descriptive statistic is a summary statistic that quantitatively describes or summarizes features of
a collection of information, while descriptive statistics in the mass noun sense is the process of
using and analyzing those statistics.

Some measures that are commonly used to describe a data set are measures of central tendency and
measures of variability or dispersion. Measures of central tendency include
the mean, median and mode, while measures of variability include the standard
deviation (or variance), the minimum and maximum values of the variables, kurtosis and skewness.

Exercises individual study will be provided to enhance the understanding of the contents.

Session 5:
l Two-way graph
l Bar graph
l Histogram

Session 6:
l Features of Financial Data
l Change of Stock Prices
l Stock Return and log form

Session 7:
l Financial Data Management
l Financial Data Processing

Students are required to download data from the available database to compute the beta for an
individual stock they are interested in. Some papers regarding different methods of computing beta
will be introduced.

Session 8:
l Group presentation of the exercise

Session 10:
l Introduction to Multiple Linear Regression
l Confidence Intervals
l Hypothesis Tests
l Goodness of Fit
l Interactions
l How to interpret the results

Data of housing prices in 70 Chinese cities are provided to students to conduct comprehensive
analysis.

Session 11
l Motivations to use pooled cross-sectional data
l Time dummies
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 l Applications

Session 12
l IV
l 2SLS
We will deal with the endogeneity problems in multiple regressions using instrument variables and
2SLS method.

Session 13
l Difference in Difference method: Theory
l Difference in Difference method: Lab Session
l How to use DID method to conduct policy evaluation
Students need to read the following paper:
David Card, and Alan B. Krueger, 1994, Minimum Wages and Employment: A Case Study of the
Fast-Food Industry in New Jersey and Pennsylvania, American Economic Review, 84(4): 772-793.

Session 14
l First Difference Estimation
l Fixed Effect Estimation
l FD vs. FE

Session 15:
l Random Effect Estimation
l Lab Session

Session 16:
l Revision
Students will present their group works in class. The whole class will have a thorough
discussion.

Miscellaneous issues
• If I need to communicate with you outside of class, I will use the email provided by BFSU. You are
responsible for checking this email system.
• I reserve the right to make adjustments in course requirements. Classes are somewhat organic and
changes are to be anticipated.
• I have expectations that students in my class will behave in a generally professional and courteous
fashion. However, I still make emphasis in some key points:
a. Please, do not be late. If you have a work schedule or other conflict that will consistently involve you
coming late to class, please drop this section and add another.
b. Please, do not read a newspaper or magazine during class. Do not read or study material for another
class during this one.
c. Please, do not surf the internet on your laptop during class. Do not IM others if you are using your
laptop to take notes.
d. Please, do not talk amongst yourselves unless you are participating in a group activity in class.
e. Be prepared with the readings and assignments that are indicated on the syllabus.
f. Turn your cell phones ringers off. Do not text messages during class.

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 g. Your grade is based on the points that you earn and your effort and participation during the whole
semester. Please do not ask for special dispensations or extra credit opportunities once the semester
is complete.

Plagiarism and Academic Dishonesty

I. Plagiarism is the unauthorized use of another’s work or ideas and the representation of these as one’s own.

Definition of Plagiarism: “The practice of taking someone else’s work or ideas and passing them off as
one’s own”. (OED)
This includes among others but not limited to
(a) copying another individual’s or group’s ideas and work, copying materials from the internet and other
published sources and producing such materials verbatim,
(b) Using others’ ideas and work without proper citation of the original proponent or author of the idea.
Students are expected to produce original work of their own for assignments and examinations.

BFSU considers plagiarism as a serious breach of professional ethics. Plagiarism will not be tolerated in any
form at BFSU. Penalties can be as severe as expulsion from the university. To avoid plagiarism it always
best to do your own work or cite the work of others appropriate. Refer to your student handbook for a more
detailed description of plagiarism and the associated penalties.
In this class, the rules are:
1. The first instance of plagiarism will result in a “zero” for the assignment in question.
2. The second instance of plagiarism will result in a fail grade for the entire course.
3. The third cumulative instance of plagiarism, academic dishonesty and violation of school disciplinary
rules in this and other classes will result in serious disciplinary action which could include expulsion
from BFSU.
4. The instructor will report each instance of plagiarism, academic dishonesty and violation of school
disciplinary rules to the disciplinary officer.

II. Academic dishonesty

Academic Dishonesty includes but not limited to: (a) plagiarism, (b) cheating during examinations,
(c) obtaining/ providing information for reports, assignments and examinations by fraudulent means, (d)
falsification of information or data, and (e) false representation of others’ effort as one’s own. Some
examples of academic dishonesty are: copying from other students during examinations; copying material
from other students’ reports/ assignments and submitting the same as one’s own report; creating fictitious
interview materials for assignments or reports. These are just a few examples and not exhaustive.
The rules on plagiarism, copying and academic dishonesty are non-negotiable.