|This course provides the basis for testing asset pricing theory. We will develop models and tests for analyzing how and why stock prices move over time and vary across stocks. We will examine the theories and empirical techniques for analyzing markets, covering academic articles and replicating studies using actual asset price data. We will derive models for portfolio decisions and prices, study the extensive empirical work that characterizes movements in security prices, and examine tests to determine whether markets are "efficient." Topics covered include 1) basic statistical tests of asset prices, 2) portfolio theory, 3) single and multi-factor pricing models, 4) market efficiency and anomalies, including value-growth and momentum, 5) behavioral finance, 6) market frictions, 7) trading costs, liquidity, and liquidity risk, 8) financial crises and opportunities for quantitative investing, and 9) empirical evidence on portfolio choice (home and local bias, private equity holdings). These topics and techniques will change depending on the current "state-of-the art" in asset pricing. The course is meant to be flexible.
This course is designed for students who want a more detailed, more rigorous, and up-to-date treatment of asset pricing theory and empirical work than is provided by 35000. It is especially appropriate for students contemplating the analytical concentration in finance, and provides many tools and concepts that are essential for the advanced finance courses. The material is covered in a rigorous analytical manner, and students must be comfortable with technical methodologies (i.e., calculus, linear algebra, and advanced statistical theory). These courses are meant to be difficult, but accessible to the highly motivated M.B.A. student. The reading list is extensive. The expectation is that the average student spends 20+ hours per week on the course, outside of class.
My course, 35151, is designed to be quite different than other similar courses, namely 35150 (Cochrane), 35120 (Pastor) and 35901 (Fama), though these courses are complementary. Students need not worry about overlap. Most of the topics covered in these courses are different, and the few topics that appear in common are covered from a different perspective in each class. The 35120 course (Pastor) is a case-based course that delves exclusively into the money management business and is an inherently different course. The 35901 course (Fama) is a Ph.D. level course that covers academic papers and methodologies. The closest course to mine in style and content is 35150 (Cochrane) and students should view these courses as a sequence where they take BOTH. In fact, we are in the process of redesigning 35150 and 35151 to be a two-course sequence.
|Based on 9 weekly problem sets that apply theory learned in class to actual stock price data and replicate results from many of the academic articles we will read in class. The focus is on rigorous empirical analysis and testing, which is motivated by the asset pricing theory we will derive in class. Class participation, including weekly presentations of academic journal articles, a "referee" (written critical) report on an academic article, and a take home final examination will also comprise the grade. In addition, for Ph.D. students only, a term paper can be written as a substitute for the weekly problem sets or take-home final. Cannot be taken pass/fail. No auditors.|