Empirical Asset Pricing (C20)
Empirical Asset Pricing (C20)
Module Coordinator/Lecturers
Study Programmes
Master's degree programme in Finance
Project Description
Asset pricing is the process of determining the fair value of financial assets. It involves using various financial theories and models to estimate the price of these assets based on factors like time discounting, future cash flows, interest rates, and risk. By analysing historical data, empirical asset pricing seeks to validate or refine theories about how prices are set, how risks are compensated, and how various factors influence asset prices. Ultimately, it aims to enhance our understanding of financial markets and improve investment strategies.
Key topics covered are:
Key topics covered are:
- Efficient Markets and the Valuation of Assets
- The Capital Asset Pricing Model (CAPM)
- Empirical Validation of the CAPM
- The Arbitrage Pricing Theory
- Multi Factor Models and Anomalies
- Pricing of Alternative Asset Classes
- Predictability in Financial Markets
Teaching Method
- Lectures
- Asset pricing exercises
- Asset pricing project
- Short paper presentation
Learning Results
After successful completion of the course, students will
Professional competence
Professional competence
- understand cornerstones of asset pricing theory.
- apply crucial empirical methods to validate or challenge the fundamental theory.
- understand the concepts of market efficiency, risk factors, and the impact of investor behaviour on asset prices.
- evaluate the correct pricing of assets.
- recognize the challenges of outperforming the market.
- estimate and evaluate expected returns.
- apply empirical asset pricing methods to realistic scenarios in R.
- evaluate a model’s asset pricing performance.
- collaborate effectively in an asset pricing project.
- develop and enhance presentation skills.
Requirements
- Basic understanding of statistical concepts such as regression analysis (OLS, WLS) and hypothesis testing.
- Familiarity with financial theories, including the Capital Asset Pricing Model (CAPM) and other asset pric-ing models.
- Proficiency in R programming, particularly in data manipulation and analysis using the tidyverse package.
- Experience with portfolio sorting techniques and Fama-MacBeth regressions.
- Knowledge of finance-specific tests and methodologies.
- Ability to create and interpret standard finance journal tables, including portfolio statistics, high minus low (HML), and other relevant metrics
Assessment Methods
Short paper presentation (10%), Written exam (60%), Empirical asset pricing project (30%); Attendance is mandatory (80%)