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
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
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
Cochrane, J. H. (1991), Production‐Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations. The Journal of Finance, 46: 209-237. doi:10.1111/j.1540-6261.1991.tb03750.x
Asset pricing with Incomplete Markets
Constantinides, George M., and Darrell Duffie. "Asset pricing with heterogeneous consumers." Journal of Political economy 104.2 (1996): 219-240
When is market incompleteness irrelevant for the price of aggregate risk (and when is it not)? Journal of Economic theory
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.