Term Project

1. Please select a research paper published in one of the leading finance journals (Journal of Finance, Journal of Financial Economics, Review of Financial Studies, Journal of Financial and Quantitative Analysis).


2. Please collect data from the database and replicate all tables in the selected paper.


3. Please compare the results shown in the paper and your results and discuss potential problems if they are different.

* Students can choose replicated papers on their own. I will verify the papers in Meeting 9.

 Schedule of the Course:

Note: I will adjust this schedule to meet the needs of the class. 

1. Meeting 1 (preperation & review: 6 hrs)

• Course Overview


• Lecture: Ordinary Least Square, Maxima Likelihood Estimation, and Generalized Least Square

2. Meeting 2 (preperation & review: 6 hrs)

• Lecture: Capital Asset Pricing Model - How to test CAPM?


• Paper 1: Fama, E. F and J. D. MacBeth, 1973. Risk, return, and equilibrium: Empirical tests. Journal of Political Economy 81, 607-636.

3. Meeting 3 (preperation & review: 6 hrs)

• Lecture: Capital Asset Pricing Model - Problems in CAPM tests (Errors-in-variable)


• Paper 2: Kim, D., 1995. The errors in the variables problem in the cross-section of expected stock returns. The Journal of Finance 50, 1605-1634.


• Paper 3: Kim, D., 1997. A reexamine of firm size, book-to-market, and earnings price in the cross-section of expected stock returns. Journal of Financial and Quantitative Analysis 32, 463-489.


• Lecture: Factor Models - Pricing factors (Arbitrage pricing theory)


• Paper 4: Fama, E. F. and K. R. French, 1992. The cross-section of expected stock returns. The Journal of Finance 47, 427-465.


• SAS program 1: Basic commends

4. Meeting 4 (preperation & review: 6 hrs)

• Paper 5: Fama, E. F. and K. R. French, 1993. Common risk factors in the returns on stocks and bonds. The Journal of Finance 33, 3-56.


• Paper 6: Fama, E. F. and K. R. French, 2015. A five-factor asset pricing model. Journal of Financial Economics 116, 1-22.


• Paper 7: Daniel, K., D. Hirshleifer, and L. Sun, 2020. Short- and long-horizon behavioral factors. The Review of Financial Studies 33, 1673-1736.


• Lecture: Fama & French 3-factor model and Fama & French 5-factor model

5. Meeting 5 (preperation & review: 6 hrs)

• Lecture: Market Efficiency - Efficient market hypothesis


• Lecture: Market Efficiency - How to test efficient market hypothesis? – Event study


• SAS program 2: Data manipulation (combining CRSP and Compustat)

6. Meeting 6 (preperation & review: 6 hrs)

• Paper 8: Hsu, H. C., A. V. Reed, and J. Rocholl, 2010. The New Game in Town: Competitive Effect of IPOs. Journal of Finance 65, 495-528.


• Lecture: Market Efficiency - Financial anomalies & zero-investment strategies


• Paper 9: Jegadeesh, N. and S. Titman, 1993. Returns to buying winners and selling losers: Implications for stock market efficiency. The Journal of Finance 48, 65-91.


• SAS program 3: Event Study

7. Meeting 7 (preperation & review: 6 hrs)

• Lecture: Return decomposition


• Paper 10: George, T. J., and C. Y. Hwang, 2004. The 52-week high and momentum investing. The Journal of Finance 59, 2145-2176.


• Paper 11: Da, Z., U. G. Gurun, and M. Warachka, 2014. Frog in the pan: Continuous information and momentum. The Review of Financial Studies 27, 2171-2218.


• SAS program 4: Data manipulation (momentum strategies)

8. Meeting 8 (preperation & review: 6 hrs)

• Project discussion

9. Meeting 9 (preperation & review: 6 hrs)

• Paper 13: Barinov, A., 2018. Stocks with extreme past returns: Lotteries or insurance? Journal of Financial Economics 129, 458-478.


• Replicated paper decided


• Lecture: Mutual Funds - Fund flows and fund performance


• Paper 14: Sirri E. R. and P. Tufano, 1998. Costly search and mutual fund flows. The Journal of Finance 53, 1589-1622.


• Meeting 10 (preperation & review: 6 hrs)


• Lecture: Mutual Funds – Survivorship


• Paper 16: Jayaraman, N., A. Khorana, and E. Nelling, 2002. An analysis of the determinants and shareholder wealth effects of mutual fund managers. The Journal of Finance 57, 1521-1551.


• Paper 17: Carhart, M, M., J. N. Carpenter, A. W. Lynch, and D. K. Musto, 2002. Mutual fund survivorship. The Review of Financial Studies 15, 1439-1463.


• SAS application 2: Peicewise linear model, quantile regression

11. Meeting 11 (preperation & review: 6 hrs)

• Lecture: Mutual Funds: Manager and investor skills


• Paper 18: Ma, L., Y. Tang, and J. P. Gomez, 2019. Portfolio manager compensation in the US mutual fund industry. The Journal of Finance 74, 587-638.


• Paper 19: Massa, M., and R. Ratgiri, 2009. Incentives and mutual fund performance: Higher performance or just higher risk taking? Review of Financial Studies 22, 1777-1815.


• SAS application 3: Censored life regression, survivorship model, multi-logit model

12. Meeting 12 (preperation & review: 6 hrs)

• Econometric Issues: Heterogeneity, fixed effects, clustering effects


• Paper 20: Petersen M. A., 2009. Estimating standard errors in finance panel data sets: Comparing approaches. The Review of Financial Studies 22, 435-480.


• Paper 21: Choi, J., S. Hoseinzade, S. S. Shin, and H. Tehranian, 2020. Corporate bond mutual funds and asset fire sales. Journal of Financial Economics 138, 432-457.


• SAS application 4: Fixed effects model, clustering effects model

13. Meeting 13 (preperation & review: 6 hrs)

• Econometric Issues: Endogeneity (2sls, exogenous shock, difference in difference)


• Paper 22: Shi, Z., 2017. The impact of portfolio disclosure on hedge fund performance. Journal of Financial Economics 126, 36-53.


• Paper 23: Eisele, A., T. Nefedova, G. Parise, and K. Peijenburg, 2020. Trading out of sight: An analysis of cross-trading in mutual fund families. Journal of Financial Economics 135, 359-378.


• SAS application 5: Two stage least square (2SLS)

14. Meeting 14

• No Class

15. Meeting 15 (preperation & review: 6 hrs)

• Econometric Issues: Sample selection bias


• Paper 24: Moreno, D., R. Rodriguez, and R. Zambrana, 2018. Management sub-advising in the mutual fund industry. Journal of Financial Economics 127, 567-587.


• Paper 25: Bonaime, A., and M. Ion, 2018. Does policy uncertainty affect mergers and acquisitions? Journal of Financial Economics 129, 531-558.


• SAS application 6: Heckman model

16. Meeting 16 (preperation & review: 6 hrs)

• Paper 12: Bali, T. G., N. Cakici, and R. F. Whitelaw, 2011. Maxing out: Stocks as lotteries and the cross-section of expected returns. Journal of Financial Economics 99, 427-446.


• Paper 15: Harris, L. E., and S. M. Hartzmark, and D. H. Solomon, 2015. Juicing the dividend yield: Mutual funds and the demand for dividends. Journal of Financial Economics 116, 433-451.


• Econometric Issues: Economic significance


• SAS application 1: Standard regression coefficient, marginal effects in logit model

17. Meeting 17 (preperation & review: 6 hrs)

• Project discussion

18. Meeting 18 (preperation & review: 6 hrs)

• Project presentation

TBA

Class Participation             50%

Term Project                      50%

1. Journal papers in Journal of Finance, Journal of Financial Economics, Review of Financial Studies, and Journal of Financial & Quantitative Analysis.


2. Cochrane, J., 2005, Asset Pricing 2^nd edition, Princeton University Press.


3. Campbell, Lo, and MacKinley, 1997, The Econometrics of Financial Markets, Princeton University Press.


4. Lee, C. F., H. Y. Chen, and John Lee, 2019. Financial Econometrics, Mathematics, and Statistics: Theory, Method, and Application, Springer.


5. Copeland, Thomas E. and J. Weston, 2005, Financial Theory and Corporate Policy, 4^th edition, Addison-Wesley Publishing Company


6. Bodie Z., A. Kane, and A. J. Marcus, 2014, Investments 10^th edition, McGrow- Hill Irwin.