Syllabus for Financial Economics , Fall 2016
This course will cover recent topics in macro asset pricing
What we can we learn about the investors' preferences, beliefs or incomes from asset pricing data ? The spirit of the material is to see how much can we say without imposing too much structure on either of these primitives.
- Existence and properties of sdf's
- If pricing functionals are linear, there exists a unique sdf in the payoff space.
- No arbritage is necessary and sufficient for existence of a strictly positive sdf
- Optimality of investors is equivalent to no arbitrage
- Restrictions on moments of sdf from asset market data
- Hansen Jagganthan Bounds
- Duality between mean variance frontiers for sdfs and returns
- Restrictions on beliefs from asset market data
- Perron Frobenius
- Restrictions on income processes from asset market data
- Existence of equilibria with incomplete markets that generate valuations consistent with any sdf
- Duffie (2001) Chapter 1
- Cochrane (2005) Chapter 3 and 4
- Hansen, Lars P., and Ravi Jagannathan. "Implications of security market data for models of dynamic economies." (1990).
- Hansen, Lars Peter, and Scott F. Richard. "The role of conditioning information in deducing testable restrictions implied by dynamic asset pricing models." Econometrica: Journal of the Econometric Society (1987): 587-613.
- George M. Constantinides and Darrell Duffie. ``Asset Pricing with Heterogeneous Consumers''.Journal of Political Economy Vol. 104, No. 2 (Apr., 1996), pp. 219-240
- Borovicka et all “Misspecified Recovery.” Mimeo.
Consumption based asset pricing models
- Empirical asset pricing puzzles
- Standard macro asset pricing theories: Lucas-Breeden, Habits, Disaster, Epstein Zin, Robustnes
- Production, adjustment costs
- Uninsurable idiosyncratic risks
- Lucas, Robert E. (1978): “Asset Prices in an Exchange Economy,” Econometrica
- Campbell, John Y., and John H. Cochrane. "By force of habit: A consumption-based explanation of aggregate stock market behavior." Journal of political Economy
- Kreps, David M., and Evan L. Porteus. "Temporal resolution of uncertainty and dynamic choice theory." Econometrica
- Epstein, Larry G., and Stanley E. Zin. "Substitution, risk aversion, and the temporal behavior of consumption and asset returns: A theoretical framework." Econometrica
- Bansal, Ravi, and Amir Yaron. "Risks for the long run: A potential resolution of asset pricing puzzles." The Journal of Finance
- Constantinides, George M., and Darrell Duffie. "Asset pricing with heterogeneous consumers." Journal of Political economy 104.2 (1996): 219-240.
Asset pricing with contracting frictions
- Alvarez, Fernando, and Urban J. Jermann. "Efficiency, equilibrium, and asset pricing with risk of default." Econometrica 68.4 (2000): 775-797.
Ai Hengjie, and Bhandari Anmol. "Asset Pricing with Endogenously Uninsurable Tail Risks"
- Duffie, Darrell (2001). Dynamic Asset Pricing Theory
- Ljungqvist, Lars and Thomas J. Sargent (2012). Recursive Macroeconomic Theory
- Cochrane, John (2005). Asset Pricing.