FINANCIAL ECONOMICS (金融經(jīng)濟(jì)學(xué)大綱)

1、financial economics (金融經(jīng)濟(jì)學(xué)大綱) ignacio palacios-huerta economics 244 department of economics mw 8:30-9:50 brown university spring 2021 financial economics this course is intended for ph.d. students interested in economics and finance. the course presumes previous exposure to undergraduate economics,

2、econometrics and statistics. the accent and intent of this course is to take the student to the frontier of our knowledge in theoretical and, especially, empirical asset pricing finance and to let him/her understand and enjoy the exciting time that academic researchers and high-tech practitioners in

3、 this area are enjoying right now. over the last decade much progress has been made to answer the fundamental questions in macroeconomics and finance. however, the central task of absolute asset pricing finance, which is to understand and measure the sources of aggregate or macroeconomic risk that d

4、rive asset prices, is unfinished. although much empirical work has documented tantalizing stylized facts and links between economic variables and finance, the theory lags behind and we do not have yet a complete model that explains, as opposed to describes, the rich body of empirical evidence. novel

5、 theories and empirical work are subject to a great demand in this field. the course is stated mostly in a discount factor language and is often translated in the traditional expected return-beta or mean-variance language. the major advantages of this approach, common in current academic research, a

6、re its universality and simplicity. the accent of the course is on understanding statements of theory, and working with that theory to applications, rather than rigorous or general proofs. the course focuses, in its second part, on current academic research and thus offers a fertile ground of ideas

7、for students that are or may be interested in doing graduate thesis in finance, microeconomics (preference formation), macroeconomics, international economics and applied econometrics dissertation topics. the course goes very lightly over many parts of asset pricing theory that have faded from curre

8、nt applications and are not a cornerstone of modern asset pricing, although they occupied large amounts of attention in the past. lecture notes and readings. the initial part of the course is based on lecture notes. i will distribute most of my own notes. the rest of the course is highly intensive i

9、n reading and evaluating several academic papers. those marked with an asterisk (*) in the enclosed list are required readings for a complete understanding of all material covered in the course. all others are suggested and intended to be additional references to various parts of the course. as the

10、course goes along other relevant papers may be distributed either as required or suggested readings. no single book covers the material in this course. however, various chapters of the book by john campbell, andrew lo and a.c. mackinlay, the econometrics of financial markets, princeton university pr

11、ess, 1997, are directly related to various parts of the course. in any event, it is an excellent book worth owning. the book asset pricing, by john cochrane, princeton university press, 2021, is highly recommended. it will be particularly useful for the first part of the course. syllabus the accent

12、of the course is on understanding the fundamental implications of finance theory, and working with that theory to applications, rather than rigorous or general proofs. applications and empirical evidence will be emphasized. basic fundamentals (especially in parts i and ii) are thoroughly discussed i

13、n lectures notes that will be distributed during the course. the structure of the course is the following: part i. discrete time asset pricing theory - weeks 1-2 1. consumption-based model a. basic pricing equation b. marginal rate of substitution / stochastic discount factor c. consumption-based mo

14、del in practice d. alternative asset pricing models: overview 2. the discount factor a. contingent claims b. law of one price c. no-arbitrage and positive discount factors 3. mean-variance frontier and beta representations a. expected return - beta representations b. mean-variance frontiers c. relat

15、ion between p = e(mx), beta and mean-variance frontiers 4. implications of existence and equivalence theorems a. discount factors vs. mean, variance and beta 5. conditioning information a. conditioning information in returns b. adding scaled returns c. conditional and unconditional models 6. factor

16、pricing stories (*) a. capital asset pricing model (capm) b. intertemporal capital asset pricing model (icapm) c. comments on capm and icapm d. arbitrage pricing theory (apt) e. icapm vs. apt part ii. initial empirical survey - week 3 1. return predictability 2. present value tests 3. factor pricing

17、 models a. the capm b. chen-roll-ross model c. investment and macroeconomic factors d. book to market 4. consumption-based model tests a. crra utility b. durable goods and habits c. state-nonseparabilities part iii. hansen-jagannathan bounds for diagnosing asset pricing models week 4 1. the basic hj

18、 bound 2. many returns-formulas. results 4. beyond mean and variance 5. diagnostic tests. comments 7. hj bounds with frictions 8. the comparison of hj bounds part iv. estimating and testing discrete-time models week 5 1. general method of moments (gmm) estimation and testing of asset pricing models

19、a. gmm in explicit discount factor models b. applying gmm to linear factor models c. other uses of gmm 2. diagnostic and specification calculations (*) a. horse races b. prespecified weighing matrices c. testing moments 3. regression-based tests (*) part v. asset pricing puzzles - weeks 6-9 1. the r

20、eturns of stocks and bonds 2. the equity premium puzzle 3. the risk-free rate puzzle 4. the stockholding puzzle 5. home bias and the international diversification puzzle 6. some “partial” solutions: a. “preference” solutions (habits and durability, “catching-up with the joneses,” “the spirit of capi

21、talism,” epstein-zin recursive preferences, campbell- cochrane “moving” habits) b. “budget constraints” solutions (liquidity constraints, borrowing constraints, short-sale constraints, transaction costs and incomplete markets) c. individual heterogeneity d. the role of other assets 7. some important

22、 considerations a. the horizon of the analysis b. who holds financial assets? c. the consumption and assets of stockholders d. who should hold financial assets (and which ones)? part vi. current and recent topics in asset pricing finance weeks 10-12 1. human capital risk and returns a. measurement a

23、nd pricing of human capital assets b. human capital and the market return c. jagannathan-wang conditional capm with human capital e. campbells risk and return e. human capital and asset pricing puzzles 2. behavioral finance a. behavioral anomalies, paradoxes and human nature b. loss aversion, disapp

24、ointment aversion, knightian uncertainty aversion c. hyperbolic vs. exponential vs. endogenous time discounting d. behavioral anomalies and asset pricing puzzles e. prospect theory and asset prices 3. robustness in macroeconomics and finance. part vii. other topics (*) for example: 1. financial stru

25、cture and risk sharing 2. endogenous risk and financial innovations 3. globalization and stock exchange competition (*) some of these topics may be covered if time allows. reading list *abel, andrew b., “asset prices under habit formation and catching up with the joneses,” american economic review p

26、apers and proceedings, vol. 80, no. 2, may 1990, pp. 38-42. aiyagari, s. rao and mark gertler. “asset returns with transactions costs and uninsured individual risk,” journal of monetary economics, 1991, 27(3), 311-332. *allais, maurice “l(fā)e comportement de lhomme rationnel devant le risque: critiques

27、 des postulats et axioms de lecole americaine,” econometrica 21, 503-546. allen, f. and d. gale, 1994, “l(fā)imited market participation and volatility of asset prices,” american economic review 84, 4, 933-955. *attanasio, o. p. and g. weber, 1995, “is consumption growth consistent with intertemporal op

28、timization? evidence from the consumer expenditure survey,” journal of political economy, 103, 6, 1121-1157. bakshi, g., and z. chen, 1994, “baby boom, population aging, and capital markets,” journal of business, 67, 165-202. *bakshi, g., and z. chen, 1996, “the spirit of capitalism,” american econo

29、mic review, march, 133-157. *brav, a. and c. geczy, 1996, “an empirical resurrection of the simple consumption capm with power utility,” working paper, university of chicago. burnside, c., 1994, “hansen-jagannathan bounds as classical tests of asset-pricing models,” journal of business and economic

30、statistics, 1994, 12, 1, 57-79. barberis, nicholas, “investing for the long run when returns are predictable,” university of chicago, center for research on security prices, working paper, no. 439, 1997. barberis, nicholas, 1996, “how big are hedging demands? evidence from long-horizon asset allocat

31、ion,” unpublished paper, harvard university, cambridge, ma. *barberis, n., huang, m. and j. santos, 1999, “prospect theory and asset prices,” forthcoming qje. *barsky, robert b., miles s. kimball, f. thomas juster, and matthew d. shapiro, “preference parameters and behavioral heterogeneity: an exper

32、imental approach in the health and retirement survey,” quarterly journal of economics, may 1997. *basak, s. and d. cuoco, 1997, “an equilibrium model with restricted stock market participation,” rodney l. white center for financial research, working paper 001-97. *baxter, marianne, and jermann, urba

33、n. “the international diversification puzzle is worse than you think.” american economic review, march 1997, 87(1), pp. 170-80. *benartzi, s. and r. thaler, “myopic loss aversion and the equity premium puzzle,” quarterly journal of economics 110, 75-92. *blanchard, o. j., 1993, “movements in the equ

34、ity premium,” brookings papers on economic activity, 2, 1993, 75-138. *bertaut, carol c. “who holds stock in the u.s.?: an empirical investigation,” university of maryland, revised december 1992. *blume, marshall e., and stephen p. zeldes, “the structure of stockownership in the u.s.”, manuscript, t

35、he wharton school, university of pennsylvania, march 1993. bodie, zvi, robert c. merton and william f. samuelson. “l(fā)abor supply flexibility and portfolio choice in a life cycle model,” journal of economic dynamics and control, 1992, v16 (3/4), 427-450. breeden, douglas t. “an intertemporal asset pri

36、cing model with stochastic consumption and investment opportunities.” journal of financial economics 7 (september 1979): 265-96. campbell, john y., “stock returns and the term structure,” journal of financial economics, vol. 18, june 1987, pp. 373-399. *_, “understanding risk and return,” journal of

37、 political economy, vol. 104, april 1996, pp. 298 -345. _. “a variance decomposition for stock returns.” economic journal 101 (march 1991): 157-79. _. “intertemporal asset pricing without consumption data,” american economic review, vol. 83, no. 3, 487-512. _. “asset prices, consumption and the busi

38、ness cycle,” paper prepared from the handbook on macroeconomics, edited by j. b. taylor and m. woodford. *campbell, john y., and cochrane, john h. “by force of habit: a consumption-based explanation of aggregate stock market behavior.” december 1999. *campbell, john y., and mankiw, n. gregory. “cons

39、umption, income, and interest rates: reinterpreting the time series evidence.” in nber macroeconomics annual 1989, edited by olivier j. blanchard and stanley fischer. cambridge, mass.: mit press, 1989. *campbell, john y., and shiller, robert j. “stock prices, earnings, and expected dividends.” journ

40、al of finance 43 (july 1988): 661-76. campbell, john y., and robert j. shiller, “the dividend-price ratio and expectations of future dividends and discount factors,” review of financial studies, vol. 1, 1988, pp. 195-227. *campbell, j. y., a. w. lo and a. c. mackinlay, 1997, the econometrics of fina

41、ncial markets, princeton university press, princeton, n.j. campbell, j. y. and l. m. viceira, 1996, “consumption and portfolio decisions when expected returns are time varying,” nber working paper 5857. forthcoming qje 2000. *campbell, j. y. and l. m. viceira, 1997, “who should buy long-term bonds?,

42、” mimeo, harvard university, cambridge, ma. *canner, n., n. g. mankiw and d. n. weil, 1997, “an asset allocation puzzle,” american economic review, vol. 87, no. 1, 181-191. cecchetti, s. g., p. lam, and n. c. mark, 1993, “the equity premium and the risk-free rate,” journal of monetary economics 31,

43、21-45. chen, nai-fu; roll, richard; and ross, stephen a. “economic forces and the stock market.” journal of business 59 (july 1986): 383-403. cochrane, john h. “a cross-sectional test of a production-based asset pricing model.” working paper no. 4025. cambridge, mass.” nber, march 1992. _. “permanen

44、t and transitory components of gnp and stock prices.” quarterly journal of economics 109 (february 1994): 241-65. cochrane, john h., “volatility tests and efficient markets: a review essay,” journal of monetary economics, vol. 27, june 1991a, pp. 463-485. _, “explaining the variance of price-dividen

45、d ratios,” review of financial studies, vol. 15, 1991b, pp. 243-280. *_, “production-based asset pricing and the link between stock returns and economic fluctuations” journal of finance, vol. 41, march 1991, pp. 207-234. _, “the sensitivity of tests of the intertemporal allocation of consumption to

46、near rational alternatives.” american economic review 79, 1989, 319-337. *_, asset pricing, princeton university press, 2021. *cochrane, john h., and lars peter hansen, “asset pricing lessons for macroeconomics,” in 1992 nber macroeconomics annual, olivier blanchard and stanley fischer (eds.), 1992,

47、 pp. 1115-1165. constantinides, george m., “theory of valuation: overview,” in theory of valuation: frontiers of modern financial theory, volume i, sudipto bhattahcharya and george m. constantinides (eds.), totowa nj: rowman and littlefield, 1989, pp. 1-23. *_, “habit formation: a resolution of the

48、equity premium puzzle,” journal of political economy, vol. 98, june 1990, pp. 519-543. *constantinides, george m., and darrell duffie, “asset pricing with heterogeneous consumers,” journal of political economy, vol. 104, april 1996, pp. 219-240. *daniel, kent and marshall, david. “the equity premium

49、 puzzle and the risk-free rate puzzle at long horizons,” macroeconomic dynamics, vol. 1, no. 1, 1997, pp. 452-484. deaton, angus s., 1991, “saving and liquidity constraints,” econometrica vol. 59, no. 5, 1221-1248. deaton, angus s., understanding consumption, new york: oxford university press, 1992.

50、 deaton, angus, and christina paxson, “intertemporal choice and inequality,” journal of poliltical economy, vol. 102, june 1994, pp. 437-467. de santis, giorgio. “volatility bounds for stochastic discount factors: tests and implications for international financial markets.” ph. d. dissertation, univ

51、ersity of chicago, 1993. *epstein, larry g., and stanley e. zin, “substitution, risk aversion and the temporal behavior of asset returns,” journal of political economy, vol. 99, april 1991, pp. 263-286. epstein, larry g., and zin, stanley e. “substitution, risk aversion, and the temporal behavior of

52、 consumption and asset returns: a theoretical framework.” econometrica 57 (july 1989): 937-69. estrella, arturo, and hardouvelis, gikas a. “the term structure as a predictor of real economic activity.” journal of finance 46 (june 1991): 555-76. fama, eugene f. “multiperiod consumption-investment dec

53、isions.” american economic review 60 (march 1970): 163-74. _. “efficient capital markets: ii.” journal of finance 46 (december 1991): 1575-1617. fama, eugene f., and french, kenneth r. “dividend yields and expected stock returns.” journal of financial economics 22 (october 1988): 3-25. _. “permanent and temporary components of stock prices.” journal of political economy 96 (april 1988): 246-73. _. “business conditions and expected returns on stocks and bonds.” journal of financ