The Contribution of Spatial Econometrics in the Field of Empirical Finance

Abstract

Spatial econometrics is a subset of econometric methods evolved from the need to account for the location and spatial interaction. This means that what happens in one economic unit of analysis is not independent of what happens in neighboring economic units. Spatial econometric methods have been advanced quickly and many studies show the usefulness of these techniques in various fields. However, they have not yet received sufficient attention in empirical finance. So, this article asks the question: what should a financier who wishes to use regression models involving spatial data know about spatial econometric methods? More precisely, this paper has two goals. In the one hand, it attempts to present a review of the peculiarities of spatial econometrics, and, in the other hand, it discusses the application of spatial econometrics in the field of finance. It summarizes some of the different spatial econometrics models that have been used in finance, and describes different kind of economic and financial distance.