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 undergraduate level. This means basic analysis,
univariate calculus, linear algebra, and probability.
To sign up send a 1page motivational letter, a 1page 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/registrationforelectives.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 sitin exam on CBS'
computers  Individual or group exam  Individual exam  Assignment type  Written assignment  Duration  2 hours  Grading scale  7point grading scale  Examiner(s)  One internal examiner  Exam period  Winter  Aids  Limited aids, see the list below:
The student is allowed to bring  Nonprogrammable, financial calculators: HP10bll+ or Texas BA
II Plus
 Language dictionaries in paper format
The student will have access to  Advanced IT application package
 Makeup exam/reexam  Same examination form as the ordinary exam If the number of registered candidates for the makeup
examination/retake examination warrants that it may most
appropriately be held as an oral examination, the programme office
will inform the students that the makeup examination/retake
examination will be held as an oral examination
instead. 
Asset Pricing
 final:  Sub exam weight  70%  Examination form  Written sitin exam on CBS'
computers  Individual or group exam  Individual exam  Assignment type  Written assignment  Duration  3 hours  Grading scale  7point grading scale  Examiner(s)  One internal examiner  Exam period  Winter  Aids  Limited aids, see the list below:
The student is allowed to bring  Nonprogrammable, financial calculators: HP10bll+ or Texas BA
II Plus
 Language dictionaries in paper format
The student will have access to  Advanced IT application package
 Makeup exam/reexam  Same examination form as the ordinary exam If the number of registered candidates for the makeup
examination/retake examination warrants that it may most
appropriately be held as an oral examination, the programme office
will inform the students that the makeup examination/retake
examination will be held as an oral examination
instead.  Description of the exam
procedure
Written sitin exam split in two sections: • Five short questions counting for 65% of
total exam grade.
• One long question counting for 35% of total
exam grade. 

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 timeseries 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 crosssection 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
MultiFactor 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
