Empirical Asset Pricing

  • 15-weeks
  • 3 credits
  • Prerequisite: F600

This course will cover a select list of current research topics in empirical asset pricing. The main focus of the course will be on testing theories of asset price determination, with particular attention to exploring the interplay between economic theory, statistical assumptions, and relevant econometric techniques.

Outline of Topics Covered:

1. The Distributional Characteristics of Speculative Prices
     1.1. Notions of Market Efficiency
     1.2. Random Walks, Martingales, and Unconditional Fat Tails
     1.3. Measurement Biases
     1.4. Mean Reversion and Long-Run Predictability
     1.5. Measuring, Modeling, and Forecasting Time-Varying Volatility
     1.6. Leverage Effects, Asymmetry, and Conditional Mean-Variance Relationships
2. The Capital Asset Pricing Model
     2.1. Unconditional Tests
     2.2. Time Varying Means and Variances
3. Arbitrage and Multifactor Asset Pricing Models
4. Stochastic Discount Factors and Consumption Based Asset Pricing Models
     4.1. Generalized Method of Moments (GMM)
     4.2. Tests of the C-CAPM and the Equity Premium Puzzle
     4.3. Habit Formation, State Non-separability, and Other Preferences
5. Present Value Relations
     5.1. VAR and Cointegration Based Procedures
     5.2. Volatility Tests
     5.3. Forward Rates as Predictors of Future Spot Rates
6. The Term Structure of Interest Rates and Continuous Time Estimation

Kelley School of Business

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