| Learning objectives |
- The student should be able to account for selected asset
pricing theories (or models).
- The student should be able to discuss the strength and weakness
in those theories (or models).
- The student should be able to apply the appropriate model on a
given issue.
- The student should be able to reflect on the implications of
alternative models on a given issue.
|
| Course prerequisites |
This is a mandatory course for the MSc in
Advanced Economics and Finance. It is assumed that students have
knowledge similar to the entry requirements for this programme. The
course has 45 confrontation hours and there is a high level of
interaction betw. lecturer and students, and in general a high work
load.
The course assumes mathematical knowledge up to advanced college
level or 1st year under-graduate level. This means basic analysis,
univariate calculus, linear algebra, and probability.
To sign up send a 1-page motivational letter, a 1-page CV, and a
grade transcript to oecon.eco@cbs.dk before the registration
deadline for elective courses. You may find the registration
deadlines on my.cbs.dk (
https://studentcbs.sharepoint.com/graduate/pages/registration-for-electives.aspx
).
Please also remember to sign up through the online
registration. |
| Examination |
The exam in the subject consists of two parts:
| Asset Pricing
- midterm: | | Sub exam weight | 30% | | Examination form | Written sit-in exam on CBS'
computers | | Individual or group exam | Individual exam | | Assignment type | Written assignment | | Duration | 2 hours | | Grading scale | 7-point grading scale | | Examiner(s) | One internal examiner | | Exam period | Winter | | Aids | Limited aids, see the list below:
The student is allowed to bring - Non-programmable, financial calculators: HP10bll+ or Texas BA
II Plus
- Language dictionaries in paper format
The student will have access to - Advanced IT application package
| | Make-up exam/re-exam | Same examination form as the ordinary exam If the number of registered candidates for the make-up
examination/re-take examination warrants that it may most
appropriately be held as an oral examination, the programme office
will inform the students that the make-up examination/re-take
examination will be held as an oral examination
instead. |
| Asset Pricing
- final: | | Sub exam weight | 70% | | Examination form | Written sit-in exam on CBS'
computers | | Individual or group exam | Individual exam | | Assignment type | Written assignment | | Duration | 3 hours | | Grading scale | 7-point grading scale | | Examiner(s) | One internal examiner | | Exam period | Winter | | Aids | Limited aids, see the list below:
The student is allowed to bring - Non-programmable, financial calculators: HP10bll+ or Texas BA
II Plus
- Language dictionaries in paper format
The student will have access to - Advanced IT application package
| | Make-up exam/re-exam | Same examination form as the ordinary exam If the number of registered candidates for the make-up
examination/re-take examination warrants that it may most
appropriately be held as an oral examination, the programme office
will inform the students that the make-up examination/re-take
examination will be held as an oral examination
instead. | Description of the exam
procedure
Written sit-in exam is split in two sections: • Five short questions
• One long
question |
|
| Course content, structure and pedagogical
approach |
|
Asset pricing theory is the subject of uncertain cash flow
valuation in terms of risk adjustments. Empirical work typically
infers these risk adjustments, imbedded in low average prices, from
high average returns. For example, the equity risk premium
inferred from time-series evidence on returns suggests an
adjustment that is an order of magnitude too large to be
rationalised by neoclassical theory. Return anomalies are also
pervasive in the cross-section of assets as evidenced by a
vast literature that rejects the Capital Asset Pricing Model in
favour of a multiple priced risk factors.
This course provides a first principles account of discrete time
asset pricing theory.
The course begins by discussing how to represent investor
preferences. The utility function representation of preferences is
then applied to a host of optimal portfolio choice problems in a
single period setting. Then stochastic discount factor
approach to asset pricing is then introduced which as a special
case includes the Capital Asset Pricing Model and Lucas Tree
Economy. The empirical validity and practical use of such models is
explored in practical assignments. These assignments are designed
to highlight the central failures of the benchmark model. Later in
the course we introduce some well studied solutions to the classic
asset pricing anomalies including the introduction of long run
risks, habit formation, investor heterogeneity, and production
based asset pricing. Finally, we conclude by reviewing some recent
evidence on the role of monetary policy and frictions in asset
pricing.
The syllabus is both exciting and extensive covering:
• Choice Under Uncertainty, Utility Functions,
and Risk Aversion
• Static Portfolio Choice
• The Capital Asset Pricing Model and
Multi-Factor Models
• The Stochastic Discount Factor
• State Pricing
• Risk Neutral Pricing
• Present Value Relations
• Consumption Based Models
• Production Based Models
• Intertemporal Risk
|
| Description of the teaching methods |
• 9 lectures
• 4 problem classes
• 1 summary / revision class |
| Feedback during the teaching period |
Exercises Classes
Course works
Forum |
| Student workload |
| Lectures |
42 hours |
| Preparation |
139 hours |
| Exam |
25 hours |
|
| Further Information |
|
PhD students taking the CBS PhD course in Asset Pricing are
following a large part of this course and may be present during the
lecture sessions.
|
| Expected literature |
|
Indicative:
• ‘Finance Decisions and Markets: A Course in
Asset Pricing’, John Campbell
• ‘Theory of Asset Pricing’, George Pennacchi
• ‘Asset Pricing’, John Cochrane
• Papers and Course Notes
|
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