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Chair of Empirical Finance & Econometrics


Why Research in Financial Econometrics Matters

During the last decade financial markets have been responding to fundamental regulatory reform, challenging economic conditions and new technologies. New financial products, rules and the onset of electronic trading in most markets have altered the landscape of financial markets. While only a few years ago, investors had to rely on their local exchange for trading, they now face the decision between numerous trading platforms to fulfill their needs.

In Europe, the Markets in Financial Instruments Directive (Mifid) harmonized regulation for investment services across, increasing competition among different markets and trading platform. Even more profound was the change induced by the Regulation National Market System (or Reg NMS) in the U.S. equity markets. While only years ago a huge amount of trading took place on the New York Stock Exchange's (NYSE) trading floor, the NYSE is now struggling to compete for order flow besides newly established electronic exchanges and dark pools.

Changes, however, not only occurred in stock markets. New derivative markets came into existence, such as the market for Credit Default Swaps. Widely popular in the beginning, providing the opportunity to hedge corporate credit risk, its reputation suffered from the recent financial crisis and as a result has undergone fundamental regulatory changes. Another example of newly established markets are emission markets. Emissions trading programs such as the European Union Emissions Trading System lead to the development of spot, future and option trading exchanges for emission permits, which nowadays are one of the fastest-growing segments in financial services.

This ever-changing landscape of financial market generates the constant need of updates regarding the role of each single market and groups of trading exchanges within the market structure as a whole. At the same time the fast development of technologies regarding electronic trading, lead to the availability of new data sources, which call for innovative approaches and methodologies, in order to extract valuable information from the huge amount of data generated by financial market trading.

The main areas in research and teaching covered by the chair of Empirical Finance and Econometrics are:

  • Quantifying price discovery between international stock markets
  • Financial market microstructure: How does market design impact information transmission between different trading platforms?
  • Informational linkages between financial markets, in particular the corporate bond and credit default swap markets
  • High frequency trading- the impact of high frequency trading and market microstructure effects on price efficiency
  • Quantifying stock market risk using implied volatility measures
  • Methods: Intensity models for irregular spaced transaction data; modelling stock returns as mixture normal distributions; Markov switching models, stochastic trends and cointegration, vector error correction models




Peter, Franziska Prof Dr
Phone:+49 7541 6009-2231
Fax:+49 7541 6009-1299
Room:SMH | Semi 1.03
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