FIN543 Scientific Methods in Finance

• Topics

  Part I: Methods in Financial Economics - Recent Applications

  In this part we look at recent research papers in finance and discuss the methods employed in these papers. In particular, we will discuss methodological challenges in these papers and how new research potentially can address these challenges and/or extend the research by other means. Potential issues to be discussed include (but are not limited to):

  • Causality and endogeneity: omitted variables, selection bias, reverse causality, measurement error
  • General method of moments (GMM)
  • Instrumental variables (IV)
  • Regression discontinuity design (RDD)
  • Matching estimators (ME)
  • Natural experiments
  • Philosophy of economics: modeling & methodology
  • Ethical issues in research

  Part II: How to Develop a Paper in Finance?

  In this part, each student will write a term paper that develops a research idea. We will discuss how to proceed, potentially including (but not limited to) the following topics:

  • Ideas and early explorations, empirical observations and implications.
  • How do I get coauthors on the project? Why do I invite them? Cooperation among coauthors (data work, design of the tables, writing, intro and abstract)
  • Hypotheses development, empirical design, data sources, sample selection, measures and variables, preliminary results, interpretations, endogeneity concerns, steps to address these concerns…
  • First draft: motivation, hypotheses, model, empirical tests, references, tables and figures, etc.
  • Distribution plan: online posting, conferences, seminars, …
  • Comments, inputs, new ideas and tests, new drafts, changes of the positioning of the paper…
  • Submissions: submission strategy; referee reports; etc.

• Learning outcome

  After successfully completing the course, the student can:

  Knowledge

  • Evaluate and apply widely used methods in finance. (We discuss recently published papers as examples.)

  • Apply the important steps in developing a paper: from hypotheses to model, model design, results and interpretation, addressing methodological issues, tables and figures, references, others.

  • Discuss and reflect on ethical issues in research such as accurate representation of data and information, full disclosure of methods, truthful reporting of results, avoidance of plagiarism, etc.

  • Discuss the philosophy of science as applicable to financial economics (philosophy of economics) including fundamental principles of methodology and modeling, and apply resulting insights in a research project

  Skills

  • Apply the methods in this course to develop a research project.
  • Structure and write a finance term paper.
  • Apply specific research skills appropriate for the chosen project, for instance appropriate software.

  General competence

  • Conduct independent and original research in finance.

• Teaching

  Seminars, including student presentations with discussions and feedback

• Restricted access

  PhD students in finance at NHH. Other students may attend by obtaining approval from the course responsible.

• Required prerequisites

  PhD-level knowledge in corporate finance (for instance FIN504A and FIN504B) and asset pricing (for instance FIN501A and 501B), as well as econometrics.

• Assessment

  Individual portfolio ("Mappevurdering") consisting of discussion papers, term paper and self-evaluation (100%).

  The portfolio will be developed during the course of the semester. Early in the semester, each student will prepare a discussion of one or several research papers according to pre-defined criteria. The aim of these discussion papers is for the student to develop a research idea that they further develop in a research paper that proposes a viable idea for a research project the student may subsequently pursue further after completing the course, for instance as a summer research project. Each student will present their research idea at several stages of development through the semester. First, the students will present their core idea and strategy for investigating that idea. This presentation will be discussed in a class seminar. Using the feedback from that seminar, the student will further develop the idea, presenting a draft implementation and preliminary results by the end of the semester. That paper will then again undergo a seminar discussion. After this seminar discussion, each student will prepare a self-evaluation of their progress in the course generally and of their development of the research project in particular. Additionally, the course responsible will provide feedback at all stages through the semester on the discussion papers and research development, and will by the end of the semester provide recommendations for future work on the research project beyond the completion of this course.

• Grading Scale

  A - F

• Computer tools

  latex, other appropriate software

• Literature

  No textbook. The course is based on academic articles and additional readings assigned by the lecturer.