Empirical Asset Pricing

Frequency

Every year

Summary

This class is designed to give you an understanding of the basics of empirical asset pricing. This means that we will learn how to test asset pricing models and apply them mostly to stock markets. We will see which theories fare well and which ones do not.

Content

Learning Prerequisites

Required courses

• You should have taken a PhD level class in asset pricing that covers the theory of asset pricing models.
• You should also have taken a course in econometrics at the master level. We will do mostly OLS and sometimes GMM but nothing fancier. Nevertheless, the basics of regressions (all the associated assumptions, problems, solutions, etc.) should be hopefully second nature to you.
• You should also have some familiarity with programming. We will be working with data and, therefore, you should have the capability of downloading (large amounts) of data and analyze those. You can choose any programming language (SAS, Stata, Python, R, Matlab, etc). In my experience, working with a few languages makes life easier than sticking to just one.

Teaching methods

Lectures will be organized around relevant papers. All these papers (and more) can be accessed via the Dropbox link

https://www.dropbox.com/sh/992erxliqshfnjj/AABP_MuRl_65ZNSaTf76waIfa?dl=0.

Obviously, we will not have enough time to cover all (or even 5% of) the ~1,300 papers. I will choose the papers that are the most relevant.

The class notes are available at DropBox (folder details to be provided later). I might make changes to them from time to time. Therefore, please download them only a few days before class.

Assessment methods

There will be one or two projects counting for 75% total. The remaining 25% will be based on writing a referee report. Details on projects are provided separately.

Resources

Bibliography

The following books can serve as a background reference (although our class will rely mostly on papers):

1. John Y. Campbell, Andrew W. Lo, and Craig MacKinlay, 1997, The Econometrics of Financial Markets, Princeton University Press.
2. John Cochrane, 2005, Asset Pricing, Princeton University Press.
3. Turan G. Bali, Robert F. Engle, and Scott Murray, 2016, Empirical Asset Pricing: The Cross Section of Stock Returns, Wiley.
4. Wayne Ferson, 2019, Empirical Asset Pricing: Models and Methods, MIT Press.

Please read (a) chapters 1 through 6 of Bali, Engle, and Murray, and (b) chapters 2 and 4 of Campbell, Lo, and MacKinlay before first class!

Ressources en bibliothèque

• The Econometrics of Financial Markets / Campbell
• Empirical Asset Pricing: The Cross Section of Stock Returns / Bali
• Empirical Asset Pricing: Models and Methods / Ferson
• Asset Pricing / Cochrane