Skip to main content
alt

Please enter a keyword and click the arrow to search the site

Or explore one of the areas below

Model before measurement

Journal

Critical Finance Review

Subject

Finance

Publishing details

Critical Finance Review 2013 Vol 2:1 p 193-215

Authors / Editors

Hennessy C

Biographies

Christopher Hennessy

Publication Year

2013

Abstract

Empirical testing in corporate finance often proceeds from qualitative theory to hypothesis tests by way of verbal plausibility arguments or via static models that do not actually make predictions regarding the quantities measured in the data such as investment rates and leverage ratios. Examples are provided regarding how this methodology has resulted in faulty inference. It is proposed that the formulation of hypothesis tests should instead be informed by operational models that explicitly map the primitive theories to measured variables. Examples are provided for how a particular class of operational models, Dynamic Quantitative Models, can be used to: inform empirical tests; estimate parameters; extract information from observed response elasticities; and perform a broad range of quantitative policy experiments. Recent criticisms of such models are addressed, and future directions discussed.

Available on ECCH

No


Select up to 4 programmes to compare

Select one more to compare
×
subscribe_image_desktop 5949B9BFE33243D782D1C7A17E3345D0

Sign up to receive our latest news and business thinking direct to your inbox

×

Sign up to receive our latest course information and business thinking

Leave your details above if you would like to receive emails containing the latest thought leadership, invitations to events and news about courses that could enhance your career. If you would prefer not to receive our emails, you can still access the case study by clicking the button below. You can opt-out of receiving our emails at any time by visiting: https://london.edu/my-profile-preferences or by unsubscribing through the link provided in our emails. View our Privacy Policy for more information on your rights.