A survey of sampling-based Bayesian analysis of financial data

Abstract

The capability of implementing a complete Bayesian analysis of experimental data has emerged over recent years due to computational advances developed within the statistical community. The objective of this paper is to provide a practical exposition of these methods in the illustrative context of a financial event study. The customary assumption of Gaussian errors underlying development of the model is later supplemented by considering Student-t errors, thus permitting a Bayesian sensitivity analysis. The supplied data analysis illustrates the advantages of the sampling-based Bayesian approach in allowing investigation of quantities beyond the scope of classical methods.

Keywords:

• Event Studies
• Inference
• Bayesian
• Markov Chain Monte Carlo
• Gibbs Sampler