Ec 306 Project

Writing an Empirical Project
This handout offers general guidelines on writing an empirical paper or project. This discussion is followed by two project topics (including data). You should choose one of these two project topics. Note that, in your EC 306 project, you do not have to include every section I talk about below (I make explicit what you do not have to do below). However, I include a complete discussion of what an empirical paper involves since you may have to do one as a student (e.g. for your dissertation) or in your future job. Hence, I think it useful that you see the complete picture, rather than just the precise steps necessary for the EC 306 project.

Description of a Typical Empirical Project
Economists are engaged in…show more content…
In particular, it discusses what constitutes good empirical science and how you should present your results. The first thing worth stressing is that there are no right or wrong empirical results. Empirical results are what they are and you should not be disappointed if they do not show what you had hoped they would. In an ideal world, a researcher comes up with a new theory then carries out empirical work that supports this new theory in a statistically significant way. The real world very rarely approaches this ideal. In the real world, explanatory variables that you expect to be statistically significant often aren’t significant. Variables you expect to be cointegrated often aren’t cointegrated. Coefficients you expect to be positive often turn out to be negative. These results are obtained all the time -- even in the most sophisticated of studies. They should not discourage you! Instead, you should always keep an open mind. A finding that a theory does not seem to work is just as scientifically valid as a finding that a theory does work. Furthermore, empirical results are often unclear or confusing. For instance, one statistical test might indicate one thing while another the opposite. Likewise, an explanatory variable that is significant in one regression might be insignificant in another regression. There is nothing you can do…show more content…
shares). In a fundamental sense, the value of a firm’s shares should reflect investors’ expectations of the firm’s future profitability. However, data on expected future profitability is non-existent. Instead, empirical financial studies must use measures such as current income, sales, assets and debt of the firm as explanatory variables. In addition to the general question of how stock markets value firms, a second question is also receiving considerable attention by financial economists in recent years. By way of motivating this problem, note that most of the shares traded on the stock market are old shares in existing firms. However, many old firms will issue some new shares in addition to those already trading -- what are referred to as “seasoned equity offerings” or SEOs. Furthermore, some firms that have not traded shares on the stock market in the past may decide to now issue such shares (e.g. a computer software firm owned by one individual may decide to “go public” and sell shares in order to raise money for future investment or expansion). Such shares are called “initial public offerings” or IPOs. Some researchers have argued on the basis of empirical evidence that IPOs are undervalued relative to SEOs (although very recent work has suggested the opposite). In this project, you are asked to empirically investigate these questions using the