Scientific Methods in Finance

FIN536 Scientific Methods in Finance

  • Topics

    This course has four parts as follows.

    Part I: Philosophy of Science and Ethics in Finance Research

    • Philosophy of science. Is Finance a science? Ethics in finance research.
    • Thaler (2010); Podsakoff et al. (2012 ARP), Ferreira et al. (2014 JBR); Schäffer et al. (2011);

    Part II: Financial Theory - The Building Blocks of Finance Research

    • From general equilibrium to partial equilibrium.
    • Rational and irrational, behavioral finance; expected utility vs. non-expected utility; rational expectation; prospect theory.
    • Market efficiency and perfection: efficient vs. inefficient; perfect market and imperfect market. Principal-agent problems and financial contracting, e.g. Jensen and Meckling (1976 JFE), Myers (1977 JFE), Stiglitz and Wiess (1981 AER); Bolton and Scarfstein (1990); Hart (2001 JEL); Aghion and Bolton (1992 RES), Roberts and Sufi (2009), Shleifer and Vishny (1997 JF).
    • Financial intermediation, e.g. Diamond and Dybvig (1983 JPE), Diamond (1984 RES); Allen and Gale (2000 JPE). Recent developments: Gorton and Souleles (2005 NBER); Shleifer and Vishny (2010 JFE); Gennailoi, Shleifer and Vishny (2013 JF).
    • Games, IO and some applications in finance: Prison`s dilemma; a few famous games.

     Part III: Empirical Methods - Recent Applications

    • Introduction to Data Sources for Research in Finance
      • International databases: Compustat, CRSP, SDC Securities, M&As, etc.
      • Norwegian databases
      • Hand-collected data
    • Causality and Endogeneity: Omitted variables; Selection bias; Reverse causality; Measurement error
    • Instrumental variables (IV)
    • Regression discontinuity design (RDD)
    • Matching estimators (ME)
    • Natural experiments

    Part IV: How to Develop a Paper? From Zero to Submissions

    In this part, we completely replicate a current working paper, and the experience and lessons when developing the paper. In particular,

    • Ideas and early explorations; empirical observations and implications.
    • How did I get coauthors of the project? Why do I invite them? Cooperation among coauthors (data work, design of the tables, writing, intro and abstract)
    • Hypotheses development; empirical design; data sources; sample selection; measures and variables; preliminary results; interpretations; endogeneity concerns; steps to address these concerns
    • First draft: motivation, hypothesis, empirical tests, references, tables and figures, other appendix
    • Distribution plan: online posting; conferences; seminars; Issuing as a working paper
    • Comments, inputs, and new ideas and tests; new drafts; changes of the positioning of the paper
    • Submissions: submission strategy; referee reports; etc.

  • Learning outcome

    The candidate should, on successfully completing the course, be able to:


    • Be aware of the philosophy of science and the important ethic issues in research.
    • Have an in-depth understanding of the building blocks in the theory of finance. In particular, we discuss several seminar papers and some new developments in the field.
    • Have an in-depth understanding of the widely used empirical methods in finance. In particular, we look into several recently published papers as examples.
    • Have an in-depth understanding of the important steps to develop a paper: from theory to hypotheses, empirical design, measures, regressions, results and interpretation, addressing endogeneity issues, tables and figures, references, others.


    • Use the theory and empirical methods in this course to develop a research project.
    • Structure and write a finance paper.
    • Use Stata and Latex in developing a research project.


    • Learn how to do independent research in finance.

  • Teaching

    PhD in Finance

  • Recommended prerequisites

    Advanced master-level courses such as microeconomics, asset pricing, investment, corporate finance, and econometrics.

  • Requirements for course approval

    Class participation; successfully replicate the project provided by the lecturer

  • Assessment

    Replicate academic papers and write a term paper individually.Class participation.

    • Class participation (20%)
    • Replication of the given paper (30%)
    • Term paper linked to topics in the course and presentation (50%)

  • Grading Scale

    Grading scale A - F, based on:

    • Class participation (20%)
    • Replication of the given paper (30%)
    • Term paper linked to topics in the course and presentation (50%)

  • Computer tools

    STATA, Latex

  • Semester

    Autumn. Offered Autumn 2018

  • Literature

    No textbook. The course is based on academic articles assigned by the lecturer.


ECTS Credits
Teaching language

Course responsible

Assistant Professor Xunhua Su, Department of Finance, NHH