NOTE: This course cannot be taken pass-fail, or for an R. The prerequisites for the course are a good fundamental background in economics (e.g., Business 33001, and some macro would help) and statistics (e.g., Business 41100), taken here or elsewhere. I reserve the right to exclude students who do not seem to be adequately prepared. If you have not taken the prerequisites here, you need my approval (via E-mail) to take the course.

Recommended for purchase (in order of importance):

1. Eugene F. Fama, Foundations of Finance (New York: Basic Books, 1976).

2. Syllabus of reproduced articles. Readings marked with a (+) are in the syllabus packet.

In the reading list, materials marked with an asterisk (*) require thorough understanding. Items that are not marked with an asterisk are background material.

Exams: There will be a weekly take-home exam question, E-mailed to you on Tuesday before noon for submission the following morning in class. You can talk to other students in preparing your answers, but each student must pass in his/her version of the answers.

Problem Sets: There will be about five problem sets that you can do individually or in groups of up to three students. The problem sets are graded, and count toward your final grade.

Term Paper: For Ph.D. students, the major requirement for the course is a term paper, which is due on Friday of the eleventh week of the spring quarter. The term paper is not required of MBA students. MBA students can elect to do a term paper, which can be used to boost course grades. But it is possible for MBA students to get an A for the course without doing a term paper. Term papers can be done individually or in groups.

Lots of class time is taken up with discussion. I expect you to think through the materials before class, and then we will discuss them together in class. I cold-call systematically, to make sure everyone prepares for class.

Grades: Grades on exam questions, the problem sets, the term paper (optional for MBA students), and class participation are combined to determine course grades. Your combined grade on the problem sets gets about one-half the weight of your combined grade on the exam questions. For Ph.D. students, the term paper gets a minimum of half the weight of the exam questions. Better term papers get more weight. In general, I give more weight to your best work. The exception is that I intend to penalize poor class preparation.

Honor Code: In preparing your answers to exam questions and problem sets, you can consult (orally) with other students in the course. But you are not to use in any way materials prepared by students who took the course in previous years

I encourage you to form study groups of 3 to 5 students.

My goal is to teach you how to learn finance, now and in the future. Thus, I do not pass out class notes. I think they encourage students to fall into a passive mode. It is your job to organize the main ideas of the course in a way that makes them meaningful to you.

If you keep ahead of me in the readings, you need not take excessive notes in class. During class, you should be thinking about what we are discussing, and using the discussion to enhance your understanding of the readings.

I. Statistics and the Stock Market

*+1. Foundations of Finance - Chapters 1-4, and section IV of chapter 7. This is background statistical material. If you find this material statistically difficult, you are in the wrong course.

2. Fama-Miller - Appendix to chapter 5. You may find this useful statistical background for the material in the Foundations, especially chapter 2. It does with summations some of what chapter 2 of Foundations does with integrals.

II. Efficient Capital Markets

A. Theory and Early Empirical Work

*+1. Foundations of Finance - Chapter 5.

2. E. Fama, Efficient Capital Markets: A Review of Theory and Empirical Work, Journal of Finance (May 1970). This is an earlier version of Chapter 5 of Foundations of Finance.

3. E. F. Fama, The Behavior of Stock Market Prices, Journal of Business (January 1965).

4. E. Fama, L. Fisher, M. Jensen, and R. Roll, The Adjustment of Stock Prices to New Information, International Economic Review (February 1969), 1-21.

5. Paul Samuelson, Proof that Properly Anticipated Prices Fluctuate Randomly, Industrial Management Review (Spring 1965), 41-49.

6. Benoit Mandelbrot, Forecasts of Future Prices, Unbiased Markets, and Martingale Models, Journal of Business (Special Supplement, January 1966), 242-255.

B. Later Empirical Work

*+1. E. F. Fama and G. W. Schwert, Asset Returns and Inflation, Journal of Financial Economics, Vol. 5, No. 2 (November 1977), 115-146.

2. Foundations of Finance - Chapter 6. This is background reading for #1. We will not spend time on it in class. If you read this chapter, note that it makes some unfounded claims about tests that separate market efficiency from models of market equilibrium.

3. E. F. Fama and M. Gibbons, A Comparison of Inflation Forecasts, Journal of Monetary Economics (May 1984). Students interested in approaches that were used after it became apparent that expected returns on bills are not constant through time might be interested in this paper.

4. E. Fama, Stock Returns, Real Activity, Inflation and Money, American Economic Review 71 (September 1981).

5. F. Fama and K. R. French, Permanent and Temporary Components of Stock Prices, Journal of Political Economy, (April 1988), 246-73.

*+7. E. F. Fama and K. R. French, Business Conditions and Expected Returns on Stocks and Bonds, Journal of Financial Economics, 25 (November 1989), 23-49.

8. E. F. Fama, Stock Returns, Expected Returns, and Real Activity, Journal of Finance, 45 (September 1990), 1089-1109.

9. G. William Schwert, Stock Returns and Real Activity: A Century of Evidence, Journal of Finance, 45 (September 1990), 1237-1257. This paper reproduces the results in Stock Returns, Expected Returns, and Real Activity, for the pre-1953 period.

III. Portfolio Decisions and Capital Market Equilibrium Under Uncertainty

A. A Theory of Choice--The Expected Utility Model

*+1. Fama-Miller - Chapter 5. Ph.D. students should understand the whole chapter, since the expected utility model is central to the material in Bus. 435. MBA students can tell from my lecture what I expect them to know (basically what risk aversion means).

2. Harry Markowitz, Portfolio Selection: Efficient Diversification of Investments, Chapters 10-13.

3. John W. Pratt, Risk Aversion in the Small and in the Large, Econometrica, XXXII (January-April 1964), 122-136.

B. The One-Period Portfolio Model

*+1. Foundations of Finance - Chapter 7.

2. Fama-Miller - Chapter 6. Primarily for Ph.D. students, except for sections I and IV.D. The relevant material for MBA students is mostly covered in chapter 7 of Foundations.

3. Harry Markowitz, op. cit., the whole book.

C. Equilibrium in the Capital Market: The CAPM

*+1. Foundations of Finance - Chapter 8 (I will not ask questions on section VIII, which is for the mathematically inclined.

*+2. Fama-Miller - Chapter 7, Section V, pages 295-298.

3. William F. Sharpe, Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk, Journal of Finance (September 1964), 425-442.

4. John Lintner, The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets, Review of Economics and Statistics (February 1965), 13-37.

5. E. F. Fama, Risk, Return and Equilibrium, Journal of Political Economy (January-February 1971).

6. F. Black, Capital Market Equilibrium with Restricted Borrowing, Journal of Business (July 1972), 444-455.

D. Empirical Tests of the Two-Parameter Model of Capital Market Equilibrium.

*+1. Foundations of Finance - Chapter 9.

2. F. Black, M. C. Jensen and M. Scholes, The Capital Asset Pricing Model: Some Empirical Tests, in M. Jensen (ed.) Studies in the Theory of Capital Markets (Praeger, 1972).

3. E. Fama and J. MacBeth, Risk, Return, and Equilibrium: Empirical Tests, Journal of Political Economy (May-June 1973).

4. R. Roll, A Critique of the Asset Pricing Theory's Tests' Part I: On Past and Potential Testability of the Theory, Journal of Financial Economics, (March 1977), 129-176.

5. M. R. Gibbons, Multivariate Tests of Financial Models: A New Approach, Journal of Financial Economics 10 (March 1982), 3-27.

*+6. R. F. Stambaugh, On The Exclusion of Assets from Tests of the Two-Parameter Model: A Sensitivity Analysis, Journal of Financial Economics 10 (November 1982), 237-68.

The papers that follow are concerned with so-called anomalies in tests of the Sharpe-Lintner-Black asset-pricing model.

7. Ray Ball, Anomalies in Relationships Between Securities' Yields and Yield-Surrogates, Journal of Financial Economics, Vol. 6, Nos. 2/3 (June/September 1978), 103-126.

8. Rolf W. Banz, The Relationship Between Return and Market Value of Common Stocks, Journal of Financial Economics 9 (March 1981), 3-18.

9. S. Basu, The Relationship Between Earnings Yield, Market Value, and Return for NYSE Common Stocks: Further Evidence, Journal of Financial Economics 12 (June 1983), 129-56.

*+10. D. B. Keim, Size Related Anomalies and Stock Return Seasonality: Further Empirical Evidence, Journal of Financial Economics 12 (June 1983), 13-32.

11. L. C. Bhandari, Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence, Journal of Finance, 43 (June 1988), 507-28.

*+12. E. F. Fama and Kenneth R. French, The Cross-Section of Expected Stock Returns, Journal of Finance, 47 (June 1992), 427-65.

E. The Information Efficiency of the Capital Market: Empirical Tests Based (Sometimes Quite Loosely) on the Two-Parameter Model of Capital Market Equilibrium

*+1. J. F. Jaffe, Special Information and Insider Trading, Journal of Business 47 (July 1974), 410-428.

*+2. H. Nejat Seyhun, Insiders' Profits, Costs of Trading, and Market Efficiency, Journal of Financial Economics 16 (June 1986), 189-212.

3. Keim, Donald B., 1988, Stock Market Regularities: A Synthesis of the Evidence and Explanations, Stock Market Anomalies, Elroy Dimson (ed.), Cambridge: Cambridge University Press.

4. Lakonishok, Joseph, and Seymour Smidt, 1988, Are Seasonal Anomalies Real?: A Ninety Year Perspective, Review of Financial Studies, 1 (Winter), 435-55. This paper reviews the evidence on some of the so-called anomalies in the behavior of security returns. It is easy reading and we will not discuss it in class. It is a good source of term paper topics.

5. Stephen J. Brown and Jerold B. Warner, Measuring Security Price Performance, Journal of Financial Economics 8 (September 1980), 205-58.

6. Stephen J. Brown and Jerold B. Warner, Using Daily Stock Returns: The Case of Event Studies, Journal of Financial Economics 14 (March 1985), 3-32.

Papers 6 and 7 are required reading for Ph.D. students and for students who want guidance about methods to use for risk-adjusting returns in event studies. If your term paper involves an event study, you will probably want to read these papers.

F. Multiperiod Extensions and Alternative Models of Capital Market Equilibrium

1. Fama-Miller - Chapter 8, Sections I and II.

2. E. Fama, Multiperiod Consumption-Investment Decisions, American Economic Review (March 1970), 163-174. Chapter 8 of Fama-Miller is based on this.

3. R. Merton, An Intertemporal Capital Asset Pricing Model, Econometrica (September 1973), 867-887.

4. Stephen A. Ross, The Arbitrage Theory of Capital-Asset Pricing, Journal of Economic Theory, December 1976.

5. John C. Cox, Jonathan E. Ingersoll, Jr., and Stephen A. Ross, An Intertemporal General Equilibrium Model of Asset Prices, Econometrica 53 (March 1985), 363-384.

6. Douglas T. Breeden, An Intertemporal Asset Pricing Model with Stochastic Consumption and Investment Opportunities, Journal of Financial Economics 7 (September 1979), 265-96.

*+7. Eugene F. Fama, Notes on Ross' (1976) Arbitrage-Pricing Theory, manuscript, November, 1993.

*+8. Eugene F. Fama, Multifactor Portfolio Efficiency and Multifactor Asset-Pricing, Journal of Financial and Quantitative Analysis, 31 (December 1996), 441-465.

*+9. Eugene F. Fama, Determining the Number of Priced State Variables in the ICAPM, Journal of Financial and Quantitative Analysis, 33 (June 1998), 217-231.

10. Nai-Fu Chen, Richard Roll, and Stephen A. Ross, Economic Forces and the Stock Market, Journal of Business, (July 1986), 383-403.

*+11. Eugene F. Fama and Kenneth R. French, Common Risk Factors in the Returns on Stocks and Bonds, Journal of Financial Economics 33 (February 1993), 3-56.

12. Josef Lakonishok, Andrei Shleifer, and Robert W. Vishny, Contrarian Investment, Extrapolation, and Risk, Journal of Finance 49 (December 1994), 1541-1578.

*+13. Eugene F. Fama and Kenneth R. French, Size and Book-to-Market Factors in Earnings and Returns, Journal of Finance 50 (March 1995), 131-156.

*+14. Eugene F. Fama and Kenneth R. French, Multifactor Explanations of Asset-Pricing Anomalies, Journal of Finance 51 (March 1996), 55-84.

*+15. Eugene F. Fama and Kenneth R. French, Value versus Growth: The International Evidence, Journal of Finance 53 (December 1998), 1975-1999.

*+16. James L. Davis, Eugene F. Fama and Kenneth R. French, Characteristics, Covariances, and Average Returns: 1929-1997, Journal of Finance 51 (February 2000), 389-506.

*+17. Eugene F. Fama and Kenneth R. French, The Value Premium and the CAPM, Journal of Finance (forthcoming). We discuss this only on a time permitting basis.

*+18. Eugene F. Fama and Kenneth R. French, The Capital Asset Pricing Model: Theory and Evidence, Journal of Economic Perspectives 18 (Summer 2004), 25-46. This is an overview (for you a review) of the current state of the CAPM. We will not discuss it in class.

*+19. Gibbons, Michael R., Stephen A. Ross, and Jay Shanken, 1989, A test of the Efficiency of a Given Portfolio, Econometrica 57, 1121-1152. This is background reading. We will not discuss it in class.

G. Evaluation of Portfolio Performance

1. Michael Jensen, Risk, the Pricing of Capital Assets, and the Evaluation of Investment Portfolios, Journal of Business 42 (April 1969), 167-247.

2. Richard A. Ippolito, Efficiency with Costly Information: A Study of Mutual Fund Performance, 1965-84, Quarterly Journal of Economics, 104, (February 1989), 1-23.

*+3. Elton, Edwin J., Martin J. Gruber, Sanjiv Das, and Matt Hlavka, 1993, Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios, Review of Financial Studies, 6, 1-22.

4. Rex Thompson, The Information Content of Discounts and Premiums on Closed-End Fund Shares, Journal of Financial Economics, Vol. 6, Nos. 2/3 (June/September 1978), 151-186.

5. Lee, Charles, Andrei Shleifer, and Richard Thaler, Investor Sentiment and the Closed-End Fund Puzzle, Journal of Finance 46 (March 1991), 75-109. This could be the source of many term papers.

6. Edwin J. Elton, Martin J. Gruber, and Jeffrey Busse, Do Investors Care about Sentiment? Journal of Business, 71 (October), 477-500.

7. E. Fama, Components of Investment Performance, Journal of Finance (June 1972).

*+8. Carhart, Mark M., On Persistence in Mutual Fund Performance, Journal of Finance, 52 (March 1997), 57-82

9. E. F. Fama, Efficient Markets: II, Journal of Finance 46 (December), 1575-1617.

[此贴子已经被作者于2005-10-21 12:38:46编辑过]