INVESTMENT or master and phd students Fan longzhen
INVESTMENT for Master and PH.D students Fan Longzhen
Course overview The focus of this course is on financial theory and empirical evidence that are useful for investment decisions. The topics include Financial theory: This include portfolio theory, CAPM, APT, discount factor model, they are important for decision-making in investments Empirical study approaches: GMM, Fama-Macbeth regression, time-series, cross-sections test of pricing model, ect Empirical evidence in the equity market. This includes patterns in cross section of stock returns. the time-series behavior of stock returns---time varying expected returns and stochastic volatility Market efficiency and active investments we start with the efficient market hypothesis, which is useful for modeling financial markets. Because efficient market theory is not a perfect description of the reality: some prices are almost certainly" wrong, active investment can have effective results. Topics in active investment include security analysis, active portfolio management, hedge funds, and risk management issues
Course overview • The focus of this course is on financial theory and empirical evidence that are useful for investment decisions. The topics include: • Financial theory: This include portfolio theory, CAPM, APT, discount factor model, they are important for decision-making in investments; • Empirical study approaches: GMM, Fama-Macbeth regression, time-series, cross-sections test of pricing model, ect. • Empirical evidence in the equity market. This includes patterns in crosssection of stock returns, the time-series behavior of stock returns---time varying expected returns and stochastic volatility. • Market efficiency and active investments: we start with the efficient market hypothesis, which is useful for modeling financial markets. Because efficient market theory is not a perfect description of the reality: some prices are almost certainly ‘wrong’, active investment can have effective results. Topics in active investment include security analysis, active portfolio management, hedge funds, and risk management issues
Introduction Assets, real assets and financial assets Financial assets. divided by markets Money markets. currencies commercial papers; T-bills Capital markets: Government debt; Corporate debt; LOCKS, Derivatives: options, forward, and futures Investment stock market investment
Introduction • Assets: real assets and financial assets; • Financial assets:divided by markets • Money markets:currencies; • commercial papers; T-bills; • Capital markets: Government debt ; Corporate debt; • stocks; • Derivatives: options, forward, and futures; • Investment: stock market investment
Role of financial asset Allocating resources: transfer resources across time(money market); transfer resources across different states(derivatives) 2. Communication information Market reflect relevant information
Role of financial asset 1. Allocating resources: transfer resources across time(money market); transfer resources across different states (derivatives); 2. Communication information:Market reflect relevant information;
Example 1: Allocating resources across time Consider an individual who live for two dates now(t=0)and later(t=1); She is endowed with 100 new and 25 later Her happiness(utility depends on her consumption now and later: Co and Cl She prefer a smooth consumption path over time There is a borrowing/lending market with zero Interest rate
Example 1: Allocating resources across time • Consider an individual who live for two dates: now (t=0) and later (t=1); • She is endowed with 100 new and 25 later; • Her happiness (utility) depends on her consumption now and later: C 0 and C 1 ; • She prefer a smooth consumption path over time; • There is a borrowing/lending market with zero interest rate;