MS08-105-G Quantitative Methods for Finance

Session 01
Introduction

Prof. Panos XIDONAS

 Data
The world’s most valuable
resource is no longer oil,
but data.
Prices 1/3
 Prices 2/3
April 30, 2019: MSFT hits 1 t$ market cap
 Prices 3/3
January 3, 2022: AAPL hits 3 t$ market cap
Distributions
Markets
 The crucial question 1/7
§ People usually ask:
- Do you make money guys?

§ But instead, the right question is:

- Are finally markets efficient?
The crucial question 2/7

Efficient Market Hypothesis (EMH):

It is impossible to beat the market,

because market efficiency causes
existing stock prices
to always incorporate and reflect
all relevant information.
The crucial question 3/7
The crucial question 4/7
The crucial question 5/7
The crucial question 6/7
The crucial question 7/7
 Suggested sources 1/3
Key-people
– Eugene FAMA, University of Chicago, Nobel Prize 2013 for his
empirical analysis on asset prices: He DOES support (and
introduced) the EMH.

– Robert SHILLER, Yale University, Nobel 2013 for his empirical

analysis on asset prices: He does NOT support the EMH.

– Rischard THALER, University of Chicago, Nobel Prize 2017 for his

contribution to behavioral economics: He does NOT support the
EMH, highly influenced by Daniel KAHNEMAN (Nobel Prize 2002),
who has integrated insights from psychological research into
economic science.
 Suggested sources 2/3
Links
– A better way to analyze which factors drive stock returns

https://review.chicagobooth.edu/finance/2019/article/better-
way-analyze-which-factors-drive-stock-returns

– The value-stock premium is shrinking

https://review.chicagobooth.edu/finance/2020/article/value-
stock-premium-shrinking
 Suggested sources 3/3

Videos
– Are markets efficient? [Eugene FAMA and Richard THALER]

https://www.youtube.com/watch?v=bM9bYOBuKF4&t=500s

– In pursuit of the perfect portfolio [Eugene FAMA]

https://www.youtube.com/watch?v=dj-RO4mh-wA&t=538s

– In pursuit of the perfect portfolio [Robert SHILLER]

https://www.youtube.com/watch?v=SmTdoM61ZkU&t=363s
The Quantitative Methods for Finance course

Area I Area II

Applied Investment
Mathematics Management
QMF

Area III
Modeling &
Programming
 Our
engineering
framework:
Spreadsheet
modeling
&
SAS
programming
QMF among famous universities
Motivation
Bibliography
Extremely helpful as well
 Course sessions 1/2
Session 01 Introduction

Session 02 Probability & Statistics for Finance I

Session 03 Probability & Statistics for Finance II

Session 04 Probability & Statistics for Finance III

Session 05 Financial Risk Measurement I

Session 06 Financial Risk Measurement II

Session 07 Regression Analysis for Portfolio Management I

Session 08 Regression Analysis for Portfolio Management II

Session 09 Regression Analysis for Portfolio Management III

 Course sessions 2/2
Session 10 Volatility modeling I

Session 11 Volatility modeling II

Session 12 Time Series Analysis I

Session 13 Time Series Analysis II

Session 14 Advanced Regression Analysis I

Session 15 Advanced Regression Analysis II

 Course material

– Sessions [15]
– Examples [62]
– Exercises [30]
– Spreadsheet models [10]
– SAS models [8]
Exercises
 Spreadsheet models 1/2

– E01_Financial statistics and VaR

– E02_Histotical simulation
– E03_Bootstrapping
– E04_Monte Carlo simulation
– E05_Portfolio optimization
 Spreadsheet models 2/2

– E06_The SIM regression mechanics

– E07_Portfolio performance evaluation
– E08_Event studies
– E09_Volatility modeling
– E10_Logistic regression
 SAS models 1/2
– S01_Financial statistics
– Tasks > Statistics > Summary Statistics

– S02_The SIM regression mechanics

– Tasks > Linear Models > Linear Regression

– S03_The FF 3-factor model

– Tasks > Linear Models > Linear Regression

– S04_Volatility modeling
– Tasks > Econometrics > Univariate Time Series Analysis
 SAS models 2/2

– S05_ARIMA modeling
– Tasks > Forecasting > Modeling & Forecasting

– S06_Logistic regression
– Tasks > Linear Models > Binary Logistics Regression

– S07_Household finance in France

– Tasks > Linear Models > Binary Logistics Regression

– S08_PCA modeling
– Tasks > Multivariate Analysis > Principal Component Analysis
 Mapping
Session Title Examples Exercises Spreadsheet models SAS models
1 Introduction
2 Probability & Statistics for Finance I 1-7
3 Probability & Statistics for Finance II 1-5 1-9 E01 S01
4 Probability & Statistics for Finance III 1-6
5 Financial Risk Measurement I 1-8
10-17 E02-E04
6 Financial Risk Measurement II 1-6
7 Regression Analysis for Portfolio Management I 1-2
8 Regression Analysis for Portfolio Management II 1-2 18-24 E05-E08 S02-S03
9 Regression Analysis for Portfolio Management III 1-4
10 Volatility modeling I 1-2
25-28 E09 S04
11 Volatility modeling II 1-3
12 Time Series Analysis I 1-7
29-30 S05
13 Time Series Analysis II 1-2
14 Advanced Regression Analysis I 1-5
E10 S06-S08
15 Advanced Regression Analysis II 1-3
 Spreadsheet modeling
Activate the Data Analysis & Solver Microsoft Excel Add-Inns
 SAS On Demand for Academics
https://www.sas.com/en_ae/software/on-demand-for-academics.html
How to register at SAS On Demand
https://welcome.oda.sas.com/login
 Important SAS links 1/2
– SAS Studio Documentation
https://documentation.sas.com/doc/en/sasstudiocdc/
3.8/webeditorcdc/sasstudioov/aboutthedoc.htm
– SAS Support
https://support.sas.com
– SAS Communities
https://communities.sas.com
 Important SAS links 2/2
– SAS Video Portal How to Tutorials > SAS Studio
https://video.sas.com
SAS Studio Documentation
 Moodle & course notes

– The whole course material will be uploaded in the

Moodle.
– But keep very good notes during lectures, for combined
use when study at home.
 Laptops & mobiles

Have your laptops available, since I will be asking you to use them.
 Evaluation

– Midterm written test (15%, 45 mins)

– Group project (35%)

– Final exam (50%, 2 hrs)

 Group project
– Each group selects three (3) S&P 500 companies.
– Using price and return data from a website like
Investing.com for a 5-yrs period, apply the quantitative
models presented during the lectures.
– Build all the corresponding spreadsheet and SAS models.
– Make use of graphs, tables and figures, in order to
present your results. Also, make comments, comparisons
and infer conclusions.
– Prepare a PPT presentation of approximately 20 slides.
End of session