FIN553 Boosting empirics with theory

• Topics

  Methodology courses in finance typically focus on either theory or on the empirical estimation. This course aims to bridge the gap between the two by exploring several ways in which empirical studies can benefit from using theory.

  We will demonstrate that using theory can often be a low-hurdle approach to improving empirical exercises. Without requiring the collection of new data, theory can help overcome identification challenges, sharpen the empirical specification, derive policy implications, or supplement regressions with additional quantitative exercises. Using theory can take, for instance, the form of explicitly linking the empirics to prior theoretical work, or adding a theoretical framework (even just a single equation) to the paper.

  Applications in the course include bank failures and lobbying; corporate takeovers and taxation; bond fire sales; and taxation and portfolio choice.

  We will discuss these possibilities in the context of actual research papers. In doing so, we will also pay attention to their evolution. Several of these papers began as purely empirical studies but later theory was added to overcome specific challenges and enrich the analysis.

• Learning outcome

  Upon course completion, the candidate can:

  Knowledge:

  • Understand how theory can enhance the quality and impact of empirical research.
  • Critically evaluate empirical work in financial economics with a focus on the principles of causal inference.

  Skills:

  • Use theoretical models to overcome identification challenges by linking specific mechanisms to empirical outcomes.
  • Create policy counterfactuals.
  • Use theory for guidance in normative interpretations of regression results.
  • Critically read and assess recent research papers.

  General competence:

  • Identify promising research ideas in the area of financial economics.

• Teaching

  Lectures and presentations.

• Restricted access

  • PhD candidates at NHH
  • PhD candidates at Norwegian institutions
  • PhD candidates at other institutions
  • PhD candidates from the ENGAGE.EU alliance
  • Individuals outside academia may be admitted after application, but are subject to the approval from the course responsible and the Vice Rector for Research on a case by case basis

• Required prerequisites

  Students must have successfully completed a PhD-level course in financial econometrics.

• Compulsory Activity

  Two mandatory assignments during the course, to be carried out in groups of two students. Each of the two tasks consists of an in-class presentation.

• Assessment

  One individual, written report.

• Grading Scale

  Pass/Fail