Asset Pricing

The details
Essex Business School
Colchester Campus
Postgraduate: Level 7
Thursday 03 October 2019
Saturday 14 December 2019
24 September 2019


Requisites for this module



Key module for

MRESN30012 Finance,
MSC N30012 Finance,
MSC L11412 Financial Econometrics,
MSC N34212 Financial Engineering and Risk Management,
MPHDN30048 Finance,
PHD N30048 Finance

Module description

The module has two parts: theoretical and empirical parts. It will first review the fundamental theories of asset pricing including the expected utility, risk aversion, portfolio choice, asset pricing kernels, and risk-neutral valuation. The second part of the module will discuss some empirical asset pricing studies.

Module aims

The aim of this module is to provide a formal introduction to asset pricing theories and to critically discuss empirical findings in asset pricing.

Module learning outcomes

On successful completion of the module, students will be able to:
* Explain and solve problems related to expected utility representations, asset allocation, and risk aversion
* Explain and solve problems related to state price representations, pricing kernels, and risk-neutral valuation
* Explain and solve problems related to the CAPM and the APT
* Critically discuss empirical studies in asset pricing

Skills for Your Professional Life (Transferable Skills)

The module will help you with the following transferable skills:
* Ability to interpret empirical statistical and econometric research results
* Ability to critically evaluate asset pricing models
* Literacy and numeracy skills
* Ability to develop your personal plan of setting targets and time management to undertake coursework and exam

Module information

No additional information available.

Learning and teaching methods

There is a two-hour lecture each week and a one-hour class.


  • Pennacchi, George Gaetano. (c2008) Theory of asset pricing, Boston: Pearson/Addison-Wesley. vol. The Addison-Wesley series in finance
  • Pennacchi, George. (2007) Theory of Asset Pricing: Pearson Education (US).
  • Amihud, Yakov. (2002) 'Illiquidity and stock returns: cross-section and time-series effects ?', in Journal of Financial Markets. vol. 5 (1) , pp.31-56
  • Jagannathan, Ravi; Wang, Yong. (2007) 'Lazy Investors, Discretionary Consumption, and the Cross-Section of Stock Returns', in The Journal of Finance. vol. 62 (4) , pp.1623-1661
  • Mehra, Rajnish. (1985) 'The equity premium: A puzzle', in Journal of Monetary Economics. vol. 15 (2) , pp.145-161
  • Luboš Pástor; Robert F. Stambaugh. (2003) 'Liquidity Risk and Expected Stock Returns', in Journal of Political Economy. vol. 111 (3) , pp.642-685
  • Eugene F. Fama; Kenneth R. French. (1992) 'The Cross-Section of Expected Stock Returns', in Journal of Finance. vol. 47 (2) , pp.427-465
  • John Y. Campbell. (1996) 'Understanding risk and return', in Journal of Political Economy. vol. 104 (2) , pp.298-345
  • Roll, Richard. (March 1977) 'A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory', in Journal of Financial Economics. vol. 4 (2) , pp.129-176
  • Daniel Kent; Sheridan Titman. (1997) 'Evidence on the Characteristics of Cross Sectional Variation in Stock Returns', in Journal of Finance. vol. 52 (1) , pp.1-33
  • Ang, Andrew. (January 2009) 'High idiosyncratic volatility and low returns: International and further U.S. evidence ?', in Journal of Financial Economics. vol. 91 (1) , pp.1-23
  • Martin Lettau; Sydney Ludvigson. (2001) 'Consumption, Aggregate Wealth, and Expected Stock Returns.', in Journal of Finance. vol. 56 (3) , pp.815-849
  • John Y. Campbell; Robert J. Schiller. (1988) 'The dividend-price ratio and expectations of future dividends and discount factors', in Review of Financial Studies. vol. 1 (3) , pp.195-228
  • Andrew Ang; Geert Bekaert. (2007) 'Stock Return Predictability: Is it There?', in Review of Financial Studies. vol. 20 (3) , pp.651-707
  • Robert F. Stambaugh; Jianfeng Yu; Yu Yuan. (2015) 'Arbitrage Asymmetry and the Idiosyncratic Volatility Puzzle', in The Journal of Finance: Wiley. vol. 70 (5) , pp.1903-1948
  • Eugene F. Fama; Kenneth R. French. (1996) 'Multifactor Explanations of Asset Pricing Anomalies', in Journal of Finance. vol. 51 (1) , pp.55-84
  • John Y. Campbell; Tuomo Vuolteenaho. (2004) 'Bad Beta, Good Beta', in American Economic Review. vol. 94 (5) , pp.1249-1275
  • Brennan, Michael J.; Wang, Ashley W.; Xia, Yihong. (2004) 'Estimation and Test of a Simple Model of Intertemporal Capital Asset Pricing', in The Journal of Finance. vol. 59 (4) , pp.1743-1776
  • Geert Bekaert; Campbell R. Harvey; Christian Lundblad. (2007) 'Liquidity and Expected Returns: Lessons from Emerging Markets', in Review of Financial Studies. vol. 20 (6) , pp.1783-1831
  • Ang, Andrew; Hodrick, Robert J.; Xing, Yuhang; Zhang, Xiaoyan. (2006) 'The Cross-Section of Volatility and Expected Returns', in The Journal of Finance. vol. 61 (1) , pp.259-299
  • Ang, Andrew. (2007) 'CAPM over the long run: 1926–2001', in Journal of Empirical Finance. vol. 14 (1) , pp.1-40

The above list is indicative of the essential reading for the course. The library makes provision for all reading list items, with digital provision where possible, and these resources are shared between students. Further reading can be obtained from this module's reading list.

Assessment items, weightings and deadlines

Coursework / exam Description Deadline Weighting
Coursework   2,000 word essay   10/01/2020  60% 
Practical   Quiz (In-class Activity)     40% 
Exam  120 minutes during Summer (Main Period) (Main) 

Overall assessment

Coursework Exam
50% 50%


Coursework Exam
50% 50%
Module supervisor and teaching staff
Dr Liya Shen, email:
Dr Liya Shen



External examiner

Prof Donal Gregory McKillop
Queen’s University Belfast
Professor of Financial Services
Available via Moodle
Of 32 hours, 32 (100%) hours available to students:
0 hours not recorded due to service coverage or fault;
0 hours not recorded due to opt-out by lecturer(s).


Further information
Essex Business School

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