Introductory Econometrics For Finance

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Introductory Econometrics for Finance
SECOND EDITION

This best-selling textbook addresses the need for an introduction to
econometrics specifically written for finance students. It includes
examples and case studies which finance students will recognise and
relate to. This new edition builds on the successful data- and
problem-driven approach of thefirst edition, giving students the skills to
estimate and interpret models while developing an intuitive grasp of
underlying theoretical concepts.
Key features:
● Thoroughly revised and updated, including two new chapters on
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panel data and limited dependent variable models
Problem-solving approach assumes no prior knowledge of
econometrics emphasising intuition ratherthan formulae, giving
students the skills and confidence to estimate and interpret models
Detailed examples and case studies from finance show students how
techniques are applied in real research
Sample instructions and output from the popular computer package
EViews enable students to implement models themselves and
understand how to interpret results
Gives advice on planning and executing aproject in empirical finance,
preparing students for using econometrics in practice
Covers important modern topics such as time-series forecasting,
volatility modelling, switching models and simulation methods
Thoroughly class-tested in leading finance schools

Chris Brooks is Professor of Finance at the ICMA Centre, University of
Reading, UK, where he also obtained his PhD. He has publishedover
sixty articles in leading academic and practitioner journals including
the Journal of Business, the Journal of Banking and Finance, the Journal of
Empirical Finance, the Review of Economics and Statistics and the Economic
Journal. He is an associate editor of a number of journals including the
International Journal of Forecasting. He has also acted as consultant for
various banks andprofessional bodies in the fields of finance,
econometrics and real estate.

Introductory Econometrics
for Finance
SECOND EDITION

Chris Brooks
The ICMA Centre, University of Reading

CAMBRIDGE UNIVERSITY PRESS

Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo
Cambridge University Press
The Edinburgh Building, Cambridge CB2 8RU, UK
Published in the United Statesof America by Cambridge University Press, New York
www.cambridge.org
Information on this title: www.cambridge.org/9780521873062
© Chris Brooks 2008
This publication is in copyright. Subject to statutory exception and to the provision of
relevant collective licensing agreements, no reproduction of any part may take place
without the written permission of Cambridge University Press.
Firstpublished in print format 2008

ISBN-13 978-0-511-39848-3

eBook (EBL)

ISBN-13

978-0-521-87306-2

hardback

ISBN-13

978-0-521-69468-1

paperback

Cambridge University Press has no responsibility for the persistence or accuracy of urls
for external or third-party internet websites referred to in this publication, and does not
guarantee that any content on such websites is, orwill remain, accurate or appropriate.

Contents

List of figures
List of tables
List of boxes
List of screenshots
Preface to the second edition
Acknowledgements

page xii
xiv
xvi
xvii
xix
xxiv

1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9

Introduction
What is econometrics?
Is financial econometrics different from ‘economic econometrics’?
Types of data
Returns in financialmodelling
Steps involved in formulating an econometric model
Points to consider when reading articles in empirical finance
Econometric packages for modelling financial data
Outline of the remainder of this book
Further reading
Appendix: Econometric software package suppliers

1
1
2
3
7
9
10
11
22
25
26

2
2.1
2.2
2.3
2.4
2.5

A brief overview of the classical linear...