Hi everybody
I'm currently studying at University of Melbourne and doing a major in Accounting and finance. I have a few spare slots of electives and would like to enquire if taking up any Econometrics or time series subjects is useful in a career of Asset Management, equities research, security, ib or any banking careers.
The subject overview are in the links below and i will like some feedback:
https://handbook.unimelb.edu.au/view/2011/ECOM300…
Useful? to whom? finance is a subset of economics, statistical analysis of economics is econometrics; thus statistical analysis of finance is partially econometrics (or "regressions with matrices"). But a proper statistician/economist would (or at least should) be hired to do it.
If you can talk about it, it's good.
If you can talk about it, most won't know what you're talking about
It's not easy, but by no means impossible, in fact I quite enjoyed it. But I wouldn't advise it unless you have dreams of being a quant.
Yea i do know theres a lot of understanding and practise required in these subjects. But i have no intention of being a quant or an economist, so i guess there's no point in pursuing them?
And basically, people are telling me that econometrics and time series are used more for academic research instead of the real working world? Need some opinions on this.
-Absolutely useless for IBD -Can be useful for trading depending on what researchers you follow. You won't be doing a lot of your own analysis, but it is helpful to speak the same language as quant researchers. -Can be useful for research, depending on what you cover and how you cover it -Absolutely necessary for structuring and certain exotic trading
Not terribly hard, good course if you want to learn in depth about regressions and its assumptions....if it is financial econometrics you'll probably just do a ton of capm and atp regressions and then test the assumptions.
If you like/are good at math, go for it. It's not that bad and you get to stretch your quant legs a bit. Not terribly relevant but not much other than excel classes really are.
As everyone said, worst case scenario you are abile to talk a bit of the quant language, worst case you just blew two chances to take ball room dancing for college credit.
I would say take econometrics first as time series plays off it more. Also if you were to just take one econometrics is your better bet. Time series classes are super math based and generally not that intuitive; so, I doubt a quant will come to you telling you that they modeled inflation rates as ARIMA(2,1,2) and expect you to have any idea what they're talking about.
Econometrics will allow you to look at explanatory models and will be much more enjoyable.
==edit: fixed some grammer not perfect==
Thanks guys for your true opinions. My decision will not to be taking any econometrics or time series classes as they are not applicable to what im pursuing unless i get out and work as a quant which i don't intend to and i'm not even qualified to. However, I do believe these courses are more suited / tailored for financial economists.
In fact, has anybody applied their business statistics knowledge in the real world? Kind of felt i wasted credit points studying for them even though they are mandatory for course completion.
Personally I've never applied what I learnt in econometrics in the real world, but it does make me view stats with greater pessimism than I would have before.
im in ibd and I sometimes do light times series/panel data, but my situation is unique. In general, it's pointless in IBD, PE, and L/S HFs. Other than that, I think times series could be very useful to know for relative value, credit (not fundamental), capital structure arbitrage, and global macro funds in certain situations. You are not wasting time on stats, it's unbelievable how much bullshit we can pull on clients because they don't know even basic statistics. Besides, it's good knowledge to have if some duck tells you he can predict a non-stationary process with an ARIMA(2,1,2), which kills 90% of the more sophisticated technical indicators.
Certainly useful in structuring, some forms of research, strategy, and some forms of asset management, Largely useless in the valuation of companies, PE, IB and most equity research. Actually kind of a cool class.
you could apply econometrics to finance with simple regression and multiple regression analysis. You can predict with certainty (confidence intervals etc) what a stock will be worth and test your hypothesis. It is useful but I don't think NOT having it will hurt you. If you want to learn a good software package to go along with econometrics try Minitab. Very easy to use. Different than your normal excel descriptive stats because it really is easier to read and reference. Great for dummy and categorical variables as well.
"You do realize that the models used to value the cost of equity can be learned through econometrics."
Yes, I certainly do. Do most shops use this method? Probably not. My shop does not (nor do we use CAPM). What method does your shop use? I’ve found that more intuitive methods are used in practice.
Econometrics - Trading? (Originally Posted: 08/06/2007)
How important is knowing econometrics for trading. I assume it helps, but is it necessary?
if you want to be a quant trader, it can't hurt.
Would a class on probability be more useful?
yes
I think all I took away from Econometrics that applies to my job is understanding what a regression is and how that can be affected by which variables you use, Simpson's paradox, covar matricies, and other basic stat principals...nothing too crazy. You could probably look most of it up online
How important is Econometrics in Finance? (Originally Posted: 11/13/2011)
Is it a skill that is valued by employers in the financial sector?
If so, who's valuing Econometrics the most? HF? IB's? Anyone?
never heard of anybody running a regression as an investment banking analyst. don't know about HF, but macro economists in a firm's research arm are bound to use econometric methods every once in a while.
Is there alot of work for macro economists in firms research arm?
Most of the time on this site, it's only about analysts. What about economists on wall street?
Are they important?
Econometrics for finance (Originally Posted: 09/04/2012)
How much econometrics do you come across in the finance world? Employable? Crowded out by quants?
Spec. financial modeling, forecasting, likely research roles.
And target v. non-target: Is that the deciding factor?
absolutely fucking none.
Target econometrics > Non - target econometrics
I'm probably not answering the question you're asking, but I'll give some quick input.
At my company (F500 healthcare) I see none and it's a shame. I really see the availability and analysis of data as our biggest weakness. I work for a really good company and it's strange to say this in 2012, but I really wonder how much better we could be if we had some sort of heavy duty research/analysis team and they could get the data they needed out of our systems.
econometrics is good for adding a veneer of respectability on that wacky pseudoscience we call economics, or, what i like to call the art of building a whole scientific discipline out of Type III Error
Not useful at all (in IBD). It's far more advanced than anything you'll do in banking at the very least, but in many other areas of finance, it's not going to be useful either.
Okay, thanks.
The MFin looks to be the route -to break in to equity research, non-ivy start
Great advice.
Econometrics important to I-Banking ? (Originally Posted: 09/18/2012)
How important is taking Econometrics to Investment Banking ?
I have two option's
Would either route be sufficient to get I-Banking ? The second route would be more time consuming and may cause me graduate later would it be worth that or just taking Statistics for Economist suffice ?
Stats yes, Calc no.
stats important? didn't find that in my experience. never needed anything beyond basic algebra
You almost never use derivatives in i-bank or consulting while you use stats all the time. If you have an applied stats course with parametrized models beyond normal distributions, that's more than enough. Hell if you know anything about regression you're way ahead of most people.
Would love to take it just don't wanna overload my senior schedule when there is an alternative
Helpful, but not essential.
Econometrics will have very little bearing on your ability to break into IB. However, econometrics and studying regression models really makes you think, great class for anyone who wants to learn
take Econometrics. It's a tough course and stands out in interviews. It was one of my favorites.
is it worth graduating a semester late or overloading my senior year term possibly 18 credits in your opinion ?
Tough Call. Probably not. If it's like my school was (more liberal arts and very heavy on write ups/analysis) it was by far the most time intensive class I took. Multiple all nighters. Multiple papers where we posed our own economic question, created a hypothesis, found and collected raw data necessary to do econometric analysis. You may use SAS, SAS Enterprice, STATA, R, or any number of other stats software. I promise you have no idea how to do real world application of statistics until you take econometrics.
In reality though, if you are just gonna go into banking, probably do an MBA and stay in mainstream finance I'd argue against overloading your senior spring or staying an extra semester. If you have good grades and make it clear you have a solid statistics/math background you will probably get all them same benefit I got, it's just how you present your qualifications. (i.e. - "took 6 stats/math classes in college" vs. "taken advanced econometrics')
I made it a requirement for myself simply because I'm considering doing an MBA as well as an Econ masters.
lastly, I would still do calc 1, calc 2, and intro to stats (if it fits into the schedule). Let bankers say whatever they want. My most successful friends all went heavy on the math and I promise it pays off.
what are people talking about...you don't use stats in banking beyond simple cagr calculations
I used an ARIMA (1,1,0) model and my boss got pissed at me and told me to use cagr.
Econometrics just widens ur horizon rather than helping u to break into IB..
Econometrics for Macro Research (Originally Posted: 02/08/2013)
Have taken 2-3 basic statistics/introductory econometrics courses and would like to take the next step to become semi competent in time series analysis. Any recommendations on books or resources for self study? Working with a book vs. applied? Non-quant background here so not looking to become an expert, but not embarrass myself.
Hi, what background precisely do you have in math? Your approach to time series analysis will depend rather heavily on how far you're willing to go in terms of mathematical formalism.
Time series analysis, as it is used in macro research, can get quite sophisticated. A solid, comprehensive choice in terms of textbooks would be Hamilton's Time Series Analysis, but that is a graduate level text and involves extensive use of linear algebra and calculus, in addition to the usual regression analysis tools (i.e. OLS, ML, GMM, etc.).
In addition, spectral analysis involves Fourier transforms which you might find mysterious without knowing its real analytic foundations. So you should tell us more about your mathematical background and aspirations before I can make more definitive recommendations.
Thanks for your quick response. My background in math is not too extensive and fairly dated. I took a few calculus courses awhile ago and have taken some basic econometrics courses. Having said that, it's a skill to pick up so even if it takes me a while to pick this up i'm willing to put in the work. Can you suggest a book or series of books? Thanks in advance for your help.
why do you even have this inclination to learn time series for macro?
I think Chicago school is probably what your looking for. This could be a good start Time Series for Macroeconomics and Finance John H. Cochrane
Time series for Macroeconomics and Finance just provides a short overview of the concepts. If you want to actually learn time series well enough to be able to apply the theory you need to work through a solid textbook and do the problems.
I only studied the subject on a graduate level and so I don't have any personal experience with time series analysis texts on a more introductory level. However, you could try Introductory Time Series with R, by Metcalfe. It seems relatively light, but it's not dedicated to macro. In particular, it seems to skip both filters and cointegration.
My advice is to do the theoretical problems, and then once you're done with the book, attempt to move onto a more advanced, macro oriented book like Hamilton's. You should also eventually attempt to replicate empirical macro papers where time series analysis is used.
And, obviously, you need to know macro on a relatively high level before you know why we bother with time series analysis. For example, you need to be comfortable with the dynamic programming approach.
Thanks for your advice guys. Basically, I work in emerging markets corporate debt (mostly balance sheet type fundamental analysis) but we use a lot of inputs from the sovereign team such as interest rate and currency econometric models. I'm not looking to take over building them but wanted to be a better consumer of them. Have you heard of applied econometrics by Enders?
Try Ruey Tsay's Time Series Analysis book--it doesn't try to slam you with advanced mathematics and covers most of the classic topics with example datasets if you want to get more hands on; even better it has a lot of stuff coded up for you to understand real-life implementation and applications to a variety of topics so you can appreciate/better understand things from the ground-up. If you get interested in a particular topic while you're reading, like volatility, try the text's explanation of ARCH/GARCH and then dig through cutting-edge papers that explore different frameworks at your leisure.
Thanks- I think this is exactly what I'm looking for. Appreciate the help.
I'm currently in graduate school and we used Hamilton as well. Honestly though, I dont think you will be using a lot of pure time series models and I would strongly recommend studying panel data techniques as well.
Thanks- it sounds like Analysis of Financial Time Series by Ruey Tsay is the way to go. Any pointers/resources for studying panel data techniques?
Econometric Analysis of Cross Section and Panel Data by Wooldridge. This is actually a graduate text as well, but it emphasizes intuition and the math is certainly not too difficult.
Yup nailed it again. Wooldridge is the best one. I'm new to WSO and I'm pretty amazed at the high signal/noise ratio on these boards.
econometrics in AM - how much in real life? (Originally Posted: 03/23/2014)
I am currently taking a quote intense econometrics course which covers a lot (arima, var, VaR, garch and All of its expansions, distributions, cointegration, multivariate garch, Markov switching models, correlation modelling, etc) and i was wondering how much of this stuff i will eventually see in Asset Management and in which role. I understand that more quantitative driven funds might use more of it if compared with fundamental equities andò that analysts will generally less concerned with these models opposed to risk managers or portfolio managers... But still: could you please shed some light into this academia-real life bridge?
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