Book Review: Financial Econometrics

Summary

• "Financial Econometrics," by Oliver Linton of Cambridge University, is written for master's degree students in finance and focuses on extending the path-breaking work presented in "The Econometrics of Financial Markets" by John Y. Campbell, Andrew W. Lo, and A. Craig MacKinlay (CLM).
• As discussed in the book, some of CLM's key findings have not stood the test of time, and new techniques have improved our understanding of important financial issues.
• Through practical exploration of key topics, Linton bridges the technical and applicability gaps with numerous examples of how key econometric techniques can be used.
• The book will be useful for the small, focused group of quants engaged in extensive financial research. It also may provide the learning tools for a quant-focused portfolio manager or analyst who is not on the frontline of actually doing the econometric work.

Financial Econometrics: Models and Methods. 2019. Oliver Linton. Cambridge University Press.

Investing is increasingly quantitative, with a close link between academic financial research and employable investment strategies. Practical understanding of econometrics is critical for the diffusion of financial knowledge. Financial research is translated into investment applications based on a firm's knowledge of and comfort with statistical techniques. A strong econometrics base is necessary even to interpret the research presented in the Financial Analysts Journal; nevertheless, the translation from academic to practical knowledge is generally poor. Any useful new econometrics book for financial analysts needs to address this deficiency, balance technical rigor with applicability, and sharpen their skills so that they can keep abreast of research developments.

Financial Econometrics, by Oliver Linton of Cambridge University, is written for master's degree students in finance and focuses on extending the path-breaking work presented in The Econometrics of Financial Markets by John Y. Campbell, Andrew W. Lo, and A. Craig MacKinlay (CLM). This is an ambitious and worthy goal, and Professor Linton provides a good reference work for key financial econometric topics and extensions over the past 20 years. As discussed in the book, some of CLM's key findings have not stood the test of time, and new techniques have improved our understanding of important financial issues. Through practical exploration of key topics, Linton bridges the technical and applicability gaps with numerous examples of how key econometric techniques can be used.

Financial Econometrics will be useful for the small, focused group of quants engaged in extensive financial research. It also may provide the learning tools for a quant-focused portfolio manager or analyst who is not on the frontline of actually doing the econometric work. Still, the analyst who wants to better understand the explosion of journal articles and working papers currently being generated on econometrics may find this