|This course surveys recent developments in investments, bridging the gap from Business 35000 to the activities of top financial institutions. One central theme: asset pricing has undergone a sea of change in the last 20 years or so, with the realization that expected returns do vary across time, and across assets in ways that the static CAPM and random-walk view does not recognize.
We will cover the modern discount factor approach to asset pricing theory, covering stocks, bonds, and options together. We will cover empirical methods, including how to evaluate asset pricing models and how to evaluate forecasting techniques. We will cover a range of topics, including 1) how stock and bond returns can be predicted over time, 2) understanding the volatility of stock and bond returns, 3) multi-factor models for understanding the cross-sectional pattern of average returns, such as value, growth and momentum effects, 4) the size of the average market return and its relation to fundamental risks, 5) Empirical work on the performance of mutual funds and hedge funds 6) liquidity and short sales constraints in asset markets 7) the financial crisis 8) the term structure of interest rates and 9) optimal portfolios that reflect multifactor models, return predictability and hedging motives.
This course and the other “advanced investment” classes 35151 (Moskowitz), 35120 (Pastor), 35151 and 35901 (Fama), are designed to be different from the others, yet complementary. Students need not worry about overlap. Most topics are different, and the topics that appear in common are covered from a different perspective in each class.
This course involves reading, weekly problem sets that encompass both conceptual problems and extensive computer problems, and preparation for class discussion.
The class website is the definitive source for information about this class including content, policies, prerequisites, etc. Information here and other places on the Booth website is not guaranteed and may be out of date. Please see the class website for more information, at http://faculty.chicagobooth.edu/john.cochrane/teaching/35150_advanced_investments/
|You need some exposure to finance (CAPM, expectations hypothesis, etc.), such as that provided by Business 35000 or more advanced courses such as Business 35151, 35901, 35904 or their equivalents from other institutions. You need to be comfortable running regressions and with simple time series such as the AR(1), background available in Business 41100, 41202 or more advanced statistics and regression classes. The prerequisites are not strict -- you do not have to ask for a waiver, and you can register without them -- but you’ll have to work harder if you’re missing background material. There is a mandatory first class assignment. See the class website http://faculty.chicagobooth.edu/john.cochrane/teaching/ for more information.
Description and/or course criteria last updated: 6/12