Empirical Finance provides learners with some theories and skills necessary for the empirical study of financial assets and markets. The class focuses on practical issues in finance while incorporating mathematical and statistical principles and practice into the course offering. Firstly, it revisits the concept of interest rate determination and central banking through the examination of primary dealer functions and government bond auctions. It examines how liquidity is maintained within equity markets by investigating the functions and operational strategies employed by market makers in maintaining trade order flows. Secondly, the module revisits the concept of returns, expected returns and asset pricing models. The expected probability distributions of returns are explored through stock price behaviour models, before examining empirical observations on historical returns during conventional trading periods and times of market stress, and sectoral differences in returns during these periods. Theoretical and empirical observations of option pricing and volatility behaviours are also examined. Thirdly, this module teaches learners how to perform robust empirical observations on market pricing behaviours using factor modelling and event studies. Learners will be introduced to Fama-French and Carhart methodologies of isolating the impact of external events on stock market behaviours. Learners will become proficient in regression modelling and will learn to appreciate the importance of controlling for endogenous and confounding effects when isolating pricing behaviours. Finally, learners will be introduced to emerging innovations in empirical finance, such as green finance and the textual analysis of financial communications and their role in influencing market behaviours.

The module covers fundamental issues in financial market theory and practice and contemporary finance issues, including sessions on 'Maintaining Financial Market Liquidity' (e.g. Money Market Securities; Primary Dealers and Government Auctions), 'Maintaining Equity Market Liquidity' (e.g. Market Making & Function of Market Makers; Trade Order Flows: Management and Prediction), 'Empirical Investigations of Equity Market Returns' (e.g. Distribution of Returns: Assumptions vs. Reality; Stock Price Behaviour Modelling: Random Walk, Generalised Weiner Process, Itô Process, Black Scholes; Historical and Sectoral Returns during times of market stress), 'Empirical Investigations of Option Market Returns' (e.g. Volatility Spikes & Volatility Smiles and Smirks; Alternative Option Pricing Models), 'Factor Modelling' (e.g. Fama-French 3-factor, Carhart 4-factor, Fama-French 5-factor analyses; Event Studies using Regression Modelling; Incorporating Controls and Confounding Variables to isolate effects of interest; Inspecting model errors and robustness checking), 'Modern Topics in Finance' (e.g. Hedge Funds & Market Anomalies; Textual Communications in Finance: Earning Reports vs. Earnings Calls; NLP in Finance; Green Finance; Applications of Finance to Research Topics)

On successful completion of the module students will be able to: Recall the role of primary dealers, government auctions, and market makers in maintaining market liquidity Interpret cross-sectoral descriptive statistics for asset returns Describe differences in assumed and empirically observed return distributions in equity and option markets Apply factor modelling best practices and robustness checks to derive novel financial insights Critically analyse departures in conventional market pricing behaviours during periods of market distress

On successful completion of the module students will be able to: Reflect on the role relevant finance theories have on influencing and explaining real-world financial events.

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The learning materials presented in this module will be guided by contemporary practice drawn from sources such as news media, industry-leading case studies, and empirical observations documented in research studies and reports released by financial institutions and supranational bodies. You will be assessed through a mixture of formative and summative assessments, allowing for cognitive and affective learning to be demonstrated. The focus on 'learn-by-doing' problem solving threaded throughout the module promotes the university graduate attributes by requiring you to articulate your knowledge and collaborate with your classmates on noteworth issues, events, and dynamics in empirical finance.