Econometrics is a branch of applied statistics that deals with the sort of data found in economics (including finance). I believe it’s important for anybody aspiring to a senior position in finance to understand the basic elements of econometrics. These elements include: statistical inference, hypothesis testing, sampling and the method of estimating a linear regression model.
All but the last of these are essential foundations of all science and social science. I personally believe any educated citizen should have a working knowledge of these concepts because so much of what happens around us, including the evidence used in public policy discussions, is statistical in nature and you cannot judge its value without some idea of sampling and the methods of inference.
The linear regression model is the workhorse of a great deal of social science analysis, both in cross sectional work (common in other social sciences) and in time series analysis (most common in economics). It is also a very good way to understand the limitations of estimating quantities in the problematic world of economic data. The careful language of econometrics goes some way to inoculating students against the over-confident quantification common to finance practitioners.
We don’t expect the great majority of MFins to practice econometrics in future but it is both an excellent way to appreciate some fundamental methods of analysis and a valuable language to speak when they encounter econometric-based data in future, which is virtually inevitable at some point.
The core course in the first term is quite short and simple, intended to make sure everyone has a basic familiarity with the concepts. Those more interested in the subject can take an elective in the second term which goes further into the detail of time series models which are used, for example, to measure volatility.
Those who are really keen and who have a good statistics background prior to the MFin can take a really advanced elective shared with the MPhil in Finance, called International Financial Econmetrics, but this is definitely only for a minority.
Leave a Reply