FIN50040 PortfolioTheory & Asset Pricing

Academic Year 2023/2024

This is a doctoral course examining advanced topics on portfolio choice and, especially, asset pricing. It is assumed that students have an MSc-level understanding of portfolio choice under uncertainly, asset pricing and portfolio theory, allowing the course to concentrate on an advanced treatment of these topics. We will not assume, however, previous exposure to doctoral courses in quantitative finance, financial economics and/or econometrics.

The unifying theme will be the role of stochastic discount factors (or pricing kernels) in linking asset prices to asset payoffs. We will learn how they can be used to represent the implications of asset pricing models in different setting (complete and incomplete markets, with or without frictions and over one or more periods). It will be fun to discover how easily (in two lines) familiar models involving risk factor loadings (e.g. the market beta) and risk premia (e.g. the market risk premium) pop out from models expressed in terms of a given stochastic discount factor.

In the process, we will have the opportunity to build intuition and shed light on key properties of important and familiar estimators. For example, we will discover that OLS, Maximum Likelihood and panel estimators are all special cases of GMM.
A core component of the course is using suitable programming languages and software to estimate and test the asset pricing models, so please bring your laptop to class. I expect most students will have access to Matlab and, therefore, the code that I will make available will be mostly for use in Matlab but I will do my best to support also other programming languages (I know R well, which is a good substitute for Matlab).

Students are encouraged to read the reference material in the textbook before the lecture.

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Curricular information is subject to change

Learning Outcomes:

Learning Outcomes

Students successfully completing this course will be able to:

1. Understand the difference between asset pricing in complete and incomplete markets and identify the circumstances in which either approach is appropriate
2. Understand the asset pricing implications of portfolio choice and vice-versa
3. Use the above understanding to identify so called market anomalies, inform asset allocation decisions and make inferences on the efficiency (or otherwise) of financial markets
4. Understand the sources of predictability of asset returns and its connection to asset price volatility
5. Identify the restrictions that asset pricing models impose on observational data and use appropriate econometric techniques to make inference on such models
6. Read and critically evaluate research articles on portfolio choice and asset pricing and articles in the broader range of financial and economic topics that contain an asset pricing element
7. Understand, adapt and possibly autonomously develop proofs and derivations of abstract results, with special emphasis on those more likely to be encountered in financial economics

Student Effort Hours: 
Student Effort Type Hours
Lectures

24
Seminar (or Webinar)

12
Computer Aided Lab

6
Autonomous Student Learning

250
Total

292
Approaches to Teaching and Learning:
Not yet recorded 
Requirements, Exclusions and Recommendations

Not applicable to this module.


Module Requisites and Incompatibles
Not applicable to this module.
 
Assessment Strategy  
Description Timing Open Book Exam Component Scale Must Pass Component % of Final Grade
Essay: Research project in the form of an asset pricing paper on a set of pre-agreed question Unspecified n/a Graded No

50
Assignment: Quantitative problems Unspecified n/a Graded No

50

Carry forward of passed components
Not yet recorded
 
Remediation Type Remediation Timing
In-Module Resit Prior to relevant Programme Exam Board
Please see Student Jargon Buster for more information about remediation types and timing. 
Not yet recorded
Timetabling information is displayed only for guidance purposes, relates to the current Academic Year only and is subject to change.
 
Autumn
      
Lecture Offering 1 Week(s) - 4, 5, 6, 7, 9, 11, 12 Mon 09:30 - 15:00
Lecture Offering 1 Week(s) - 8 Thurs 08:00 - 13:30
Lecture Offering 1 Week(s) - 10, 13 Thurs 09:30 - 15:00
Lecture Offering 1 Week(s) - 14 Thurs 09:30 - 15:00
Autumn