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:
Econometrics can be more than just numbers.
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