DRE 4016 Topics in Finance
APPLIES TO ACADEMIC YEAR 2012/2013
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DRE 4016 Topics in Finance Responsible for the course Richard Priestley Department Department of Financial Economics Term According to study plan ECTS Credits 6 Language of instruction English Introduction Please note that thise course will be revised before it is offered again This course provides students with an intorduction at the PhD level to four topical areas in financial economics. The common theme runnung through the course is the pricing of financial assets. Part 1 of the course deals with International Asset Pricing models. Part 2 of the course examines non-standard preferences and assess the role of behavioural biases on asset prices. Part 3 of the course examines the role of liquity in financial markets. Part 4 of the course introduces students to the optimal design of mortgage contracts and explores mortgage prepayment and default. Learning outcome Part 1. International Asset Pricing. This part reviews the fundamental papers in international asset pricing and discuss recent developments in the field. Students should understand the theoretical underpinnings of international asset pricing models. In addition, students should comprehend the empirical methodologies for testing international sset pricing models. Learning how to estimate, test and intepret results from international asset pricing is an integral aspect of this part of the course. Particular attention will be given to undestanding the integration and segmnetation of international capital markets along with currency risk. Part 2. Behavioural Finance. There are reasons to believe that rational agents in efficient markets is an inadequate description of financial markets. The first part of this course surveys evidence on how investor behavior influence asset prices in ways not predicted by standard asset pricing theory. The second part of the course deals with behavioral corporate finance emphasizing the security issue process. Students learning is focussed on the understanding of how non-standard preferences effect the cross section of asset prices and on managerial decisions regarding security issuance. Part 3. Asset Pricing and Liquidity. This part of the course focuses on the importance of liquidity with respect to asset pricing. Recent papers suggest that liquidity is an important determinant for asset pricing, something that is basent in traditional models of asset pricing. In this part of the course emphasis is placed on dfferent dimensions of liquidity and particular focus will be placed on the empirical literature. Student learning will be concentrated on understanding how liquidity can effect asset prices, both in the cross-section and time series of asset returns. Part 4. Real Estate Financing. This part of the course exmaines the designing of residential mortgage contracts and explores mortgage prepayment and default.The objective of the lectures is to give the students an understanding of the linkages between loan design and borrower characteristics. The options embedded in debt instruments are discussed. While the discussion is frames around residential mortgages, the knowledge attained by students should be relevant for many more fixed income instruments. The students will familiarize themselves with the key articles on the topics to date. Prerequisites Admission to a PhD Programme is a general requirement for participation in PhD courses at BI Norwegian Business School. External candidates are kindly asked to attach confirmation of admission to a PhD programme when signing up for a course with the doctoral administration. Other candidates may be allowed to sit in on courses by approval of the courseleader. Sitting in on courses does not permit registration for courses, handing in exams or gaining credits for the course. Course certificates or conformation letters will not be issued for sitting in on courses Compulsory reading Recommended reading Course outline Part 1. International Asset Pricing Models A: Models of international asset pricing. Adler, Michael, and Bernard Dumas, 1983, International portfolio choice and corporation finance: A synthesis, Journal of Finance 38, 925-984. Dahlquist, Magnus and Torbjørn Sållstråm, 2002, An evaluation of international asset pricing models, CEPR Discussion paper No. 3145. Errunza and Losq, 1989, Capital flow controls, International Asset Pricing and Investors welfare: A multicountry framework, Journal of Finance, 1025-38 Christian Heyerdahl-Larsen Sercu, Piet, 1980, A generalization of the international asset pricing model, Revue de l'Association Francaise de Finance 1, 91-135. Solnik, Bruno H., 1974, An equilibrium model of the international capital market, Journal of Economic Theory 8, 500-524. Stulz, Rene M.1995, International asset pricing: An integrative survey, Handbook of Modern Finance, R. Jarrow, M. Maksimovic and W. Ziemba eds., North Holland - Elsevier, 201-223. Uppal, Raman, 1993, A General Equilibrium Model of International Portfolio Choice, Journal of Finance, pp 529-553 Harvey, Campbell, 1991. The World Price of Covariance Risk, Journal of Finance 46, 111-158. B: Integration vs segmentation Aydemir, Cevdet, 2004, Why are international equity market correlations low?, Working paper, Carnegie Mellon University. Bekaert, Geert, and Campbell R. Harvey, 1995, Time-varying world market integration, Journal of Finance 50, 403-444. Bekaert, Geert, Robert J. Hodrick, and Xiaoyan Zhang, 2008, International Stock Return Comovements, Working paper, Columbia University and Cornell University. Carrieri, Francesca, Vihang Errunza, and Ked Hogan, 2007, Characterizing world market integration through time, Journal of Financial and Quantitative Analysis 42, 915-940. Carrieri, Francesca, Vihang Errunza, and Sergei Sarkissian, 2004, Industry Risk and Market Integration, Management Science, 50, 207-221. De Jong, Frank, and Frans A. de Roon, 2005, Time-varying market integration and expected returns in emerging markets, Journal of Financial Economics 78, 583-613. Esther Eiling and Bruno Gerard, 2008, Dispersion, Equity Returns Correlations and Market Integration, Working Paper Errunza, Vihang, and Etienne Losq, 1985, International asset pricing under mild segmentation: Theory and test, Journal of Finance 40, 105-124. C: Currency risk Brandt, Michael W., John H. Cochrane, and Pedro Santa-Clara, International Risk Sharing is Better Than You Think, or Exchange Rates are Too Smooth, Journal of Monetary Economics 53, 2006, 671-698. Campbell, John Y., Karine Serfaty-de Medeiros, and Luis Viciera, 2008, Global Currency hedging, Forthcoming, Journal of Finance. Frans De Roon, Esther Eiling, Bruno Gerard and Pierre Hillion, 2009, Currency Investing in Global Portfolios: Hedging or Speculative Benefits?, Working Paper De Santis, Giorgio and Bruno Gerard, 1998, How big is the premium for currency risk? Journal of Financial Economics 49, 375-412. Acharya, V. and L. Pedersen, “Asset Pricing with Liquidity Risk,” JFE 2005. Baker, Malcolm and Jeremy C. Stein, Market liquidity as a sentiment indicator. JFM 2004, 271-299. Brennan, M. and A. Subrahmanyam, “Market Microstructure and Asset Fujimoto, A. and M. Watanabe, “Stock Market Activity and Liquidity Huang, M. “Liquidity Shocks and Equilibrium Liquidity Premia,” JET Lo, Andrew W., Harry Mamaysky and Jiang Wang, Asset prices and trading volume under fixed transaction costs. JPE 2004, 1054-1090. Pastor, L. and R. Stambaugh, “Liquidity Risk and Expected Stock Returns,” JPE 2003. Examination There will be four assignments, each counting 25% to the final grade. Each of the four assignments can contain one, or all of the following: presentations, written hand-in, exam. The course will be graded A-F, and it is process evaluation. Examination code(s) DRE 40161 counts for 100% Examination support materials NA Re-sit examination Next time the course is offered Additional information Honour Code Academic honesty and trust are important to all of us as individuals, and represent values that are encouraged and promoted by the honour code system. This is a most significant university tradition. Students are responsible for familiarizing themselves with the ideals of the honour code system, to which the faculty are also deeply committed. Any violation of the honour code will be dealt with in accordance with BI’s procedures for cheating. These issues are a serious matter to everyone associated with the programs at BI and are at the heart of the honour code and academic integrity. If you have any questions about your responsibilities under the honour code, please ask. |