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Financial econometrics is the application of statistical methods to financial data.[1] Financial econometrics is a branch offinancial economics, in the field ofeconomics. Areas of study include capital markets,[2] financial institutions,corporate finance andcorporate governance. Topics often revolve around asset valuation of individual stocks, bonds, derivatives, currencies and other financial instruments.
It differs from other forms ofeconometrics because the emphasis is usually on analyzing the prices of financial assets traded at competitive, liquid markets.
People working in the finance industry or researching the finance sector often use econometric techniques in a range of activities – for example, in support ofportfolio management and in the valuation of securities. Financial econometrics is essential forrisk management when it is important to know how often 'bad' investment outcomes are expected to occur over future days, weeks, months and years.
The sort of topics that financial econometricians are typically familiar with include:
The Society for Financial Econometrics (SoFiE)[5] is a global network of academics and practitioners dedicated to sharing research and ideas in the fast-growing field of financial econometrics. It is an independent non-profit membership organization, committed to promoting and expanding research and education by organizing and sponsoring conferences, programs and activities at the intersection of finance and econometrics, including links to macroeconomic fundamentals. SoFiE was co-founded byRobert F. Engle andEric Ghysels.
Premier-quality journals which publish financial econometrics research includeEconometrica,Journal of Econometrics andJournal of Business & Economic Statistics. The Journal of Financial Econometrics[6] focuses exclusively on financial econometrics and maintains a close relationship with SoFiE.
TheNobel Memorial Prize in Economic Sciences has been awarded for significant contribution to financial econometrics; in 2003 toRobert F. Engle "for methods of analyzing economic time series with time-varying volatility" andClive Granger "for methods of analyzing economic time series with common trends"[7] and in 2013 toEugene Fama,Lars Peter Hansen andRobert J. Shiller "for their empirical analysis of asset prices".[8] Other highly influential researchers include Torben G. Andersen,Tim Bollerslev andNeil Shephard.[9]