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2017/2018  KAN-COECO1050U  Asset Pricing

English Title
Asset Pricing

Course information

Language English
Course ECTS 7.5 ECTS
Type Mandatory offered as elective
Level Full Degree Master
Duration One Semester
Start time of the course Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 50
Study board
Study Board for MSc in Advanced Economics and Finance
Course coordinator
  • Paul Whelan - Department of Finance (FI)
Main academic disciplines
  • Finance
  • Economics
Last updated on 26-02-2018

Relevant links

Learning objectives
To achieve the grade 12, students should meet the following learning objectives with no or only minor mistakes or errors:
  • 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.

To sign up send a 1-page motivational letter, a 1-page CV, and a grade transcript to oecon.eco@cbs.dk no later than XX XX 2016. Please also remember to sign up through the online registration
Prerequisites for registering for the exam
Number of mandatory activities: 2
Compulsory assignments (assessed approved/not approved)
The students must hand in two written assignments during the course and must pass them both on an approved/not approved basis before the final exam.

If a student - due to documented illness or failed attempts - does not pass both assignments, the student will be given a final chance to retake this part of the course by handing in a new assignment prior to the final exam.

The two group course works are designed to explore:
1. Cross-sectional tests of asset returns
2. Time-series tests of asset returns

The assignments are made in groups of three students.
Asset Pricing:
Exam ECTS 7,5
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-step 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
At all written sit-in exams the student has access to the basic IT application package (Microsoft Office (minus Excel), digital pen and paper, 7-zip file manager, Adobe Acrobat, Texlive, VLC player, Windows Media Player). PLEASE NOTE: Students are not allowed to communicate with others during the exam : Read more about exam aids and IT application packages here
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 split in two sections:

  1. Five short questions couting for 65% of total exam grade
  2. One long question couting for 35% of total exam grade

Students must answer all questions in Section 1. and will be given a choice of questions in Section 2.

Course content and structure

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
- Single Period Portfolio Choice
- Mean-Variance Analysis, the Capital Asset Pricing Model, and Cross-Sectional Anomalies
- The Stochastic Discount Factor Approach to Asset Pricing
- Asset Pricing Puzzles: The Lucas Tree Economy 
- Market Efficiency in stock and bond markets
- Asset Pricing Solutions: long run risks, habit formation, investor heterogeneity, and production based asset pricing
- More Puzzles: the role of monetary policy and frictions


Teaching methods
The course consists of both lectures and problem classes.
Approximately 2/3 of the course consists of lectures with the remaining 1/3 problem classes. A full time-table will be published on learn.cbs.dk in advance of the course start date.
Feedback during the teaching period
Exercises Classes
Course works
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


  • Pennacchi: Theory of Asset Pricing.
  • Back: Asset Pricing and Portfolio Choice Theory.
  • Cochrane: Asset Pricing.
  • Course notes 
Last updated on 26-02-2018