MF890: Ph.D. Seminar in Asset Pricing Theory Spring Semester 2013

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1 Boston College Carroll School of Management MF890: Ph.D. Seminar in Asset Pricing Theory Spring Semester 2013 Monday, 12:00 PM 2:30 PM Professor: David Chapman Fulton 240 Office: Fulton 326B Office Hours: Monday, 2:30 PM 3:30 PM Phone: (617) Blog: Course Description This course is divided into two parts. In the first half of the semester, we focus on the basic intuition of the classical theory of asset price determination and portfolio selection. In the second half of the semester, we consider extensions of these basic models in a variety of new directions. Texts The required text for the class is: Kerry Back, 2010, Asset Pricing and Portfolio Choice Theory. Oxford University Press. Additional texts that you might want to own (or consult) include: [1] Cochrane, John H., 2005, Asset Pricing (Revised Edition). Princeton: Princeton University Press. [2] Duffie, Darrell, 2003, Dynamic Asset Pricing Theory, 3 rd Edition. Princeton: Princeton University Press. [3] Skiadis, Costis, 2009, Asset Pricing Theory. Princeton: Princeton University Press. Assignments and Grading Your course grade will be determined as follows: Two Exams (equally weighted): 70% Paper Presentation: 20% Class Participation: 10% 1

2 Course Communication Outside of class, the primary mechanism for communicating important course related material will be via the Blackboard Vista site for the course, which you can reach through Agora. Office hours are posted at the top of this syllabus. I can also meet with you by appointment. Course Outline Class #1: January 14 This syllabus is subject to change with proper notification. 1: Course Overview 2: Economic Modeling 3: Absence of Arbitrage I: Single-Period Finite-State Market Tjalling C. Koopmans, 1957, The Construction of Economic Knowledge, in Three Essays on the State of Economic Science. McGraw-Hill. (Read only Sections 1 through 7.) Back: Chapter 2, Section 2.2. Chapter 4. Sections Class #2: January 28 January 21: NO CLASS (Dr. Martin Luther King, Jr. Holiday) 1: Risk Neutral Probabilities 2: Applications of Absence of Arbitrage to Simple Pricing Problems 3: The Reisz-Representation Theorem Back: Chapters 2 & 3. Class #3: February 4: 1: Multiperiod Absence of Arbitrage 2: Stochastic Discount Factors 3: Single-Period Portfolio Choice Back: Chapter 3 & 4. 2

3 Class #4: February 11 1: Complete Markets 2: Equilibrium and Efficiency 3: The CAPM: Calculus Approach 4: The CAPM: Via the Projection Theorem Back: Chapters 5 & 6. Class #5: February 18 1: A State-Price Beta Model 2: Multifactor Models 3: Representative Investors Back: Chapters 6 & 7. Class #6: February 25 1: Asymmetric Information: The No-Trade Theorem 2: Asymmetric Information: Noisy Trading and Partially Revealing Equilibria 3: Asymmetric Information: The Kyle Model Back: Chapter 19, Sections 19.1 through March 4: NO CLASS (Spring Break) Class #7: March 11 Exam #1 Class #8: March 18 Dynamic Portfolio Choice via Dynamic Programming Back: Chapter 9. 3

4 Class #9: March 25 1: Alternative Dynamic Preferences 2: An Example of a Dynamic Portfolio Choice Solution 3: The CCAPM and the ICAPM. 4: Asset Pricing Puzzles Back: Chapters 21, 10 and 11. Class #10: April 1 1: Epstein and Zin (1991). 2: Campbell and Cochrane (1999). 3: Bansal and Yaron (2004). L. Epstein and S. Zin, 1991, Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis, Journal of Political Economy, 99(2), pages J. Campbell and J. Cochrane, 1999, By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior, Journal of Political Economy, 107(2), pages R. Bansal and A. Yaron, 2004, Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles, Journal of Finance, 59(4), pages APRIL 8: No class: Sheridan Titman Seminar APRIL 15: Patriot s Day, No class. 4

5 Class #11: April 22 1: Papanikolaou (2011). 2: Kogan and Papanikolaou (2012). D. Papanikolaou, 2011, Investment Shocks and Asset Prices, Journal of Political Economy, 119(4), pages L. Kogan and D. Papanikolaou, 2012, Growth Opportunities, Technology Shocks, and Asset Prices, forthcoming in the Journal of Finance. Class #12: April 29 1: He and Krishnamurthy (2012a). 2: He and Krishnamurthy (2012b). Z. He and A. Krishnamurthy, 2012a, Intermediary Asset Pricing, forthcoming in the American Economic Review. Z. He and A. Krishnamurthy, 2012b, A Model of Capital and Crises, forthcoming in the Review of Economic Studies. Class #13: May 6 1: Gertler and Kiyotaki (2010). 2: Li (2012). M. Gertler and N. Kiyotaki, 2010, Financial Intermediation and Credit Policy in Business Cycle Analysis, in the Handbook of Monetary Economics. K. Li, 2012, Asset Pricing with a Financial Sector, Manuscript, Department of Economics, Duke University. May 13: Exam #2 5