University of Essex

BE352-7-AU-CO:
Asset Pricing

The details

Year: 2024/25

Department: Essex Business School

Campus: Colchester Campus

Term: Autumn

Level: Postgraduate: Level 7

Status: Current

Start date: Thursday 03 October 2024

End date: Friday 13 December 2024

Credits: 20

Last updated: 23 July 2024

Requisites for this module

Pre-requisites: (none)

Co-requisites: (none)

Pre and / or co-requisites: (none)

Prohibited modules: (none)

Key module (requisite for): (none)

Key module for

MRESN30012 Finance,
MSC N30012 Finance,
MSC N30024 Finance,
MSC L11412 Financial Econometrics,
MSC N34212 Financial Engineering and Risk Management,
MSC N34224 Financial Engineering and Risk Management,
MPHDN30048 Finance,
MPHDN30084 Finance,
PHD N30048 Finance,
PHD N30084 Finance

Module description

The module has two parts, theoretical and empirical. It will first review the fundamental theoretical concepts, such as expected utility and risk aversion, portfolio choice, pricing kernel, risk-neutral valuation, and consumption-based asset pricing. The second part of the module will focus on empirical issues of asset pricing including the cross-section of stock returns, factor pricing models, estimation methods in asset pricing, and time series predictability.

Module aims

The aims of this module are:

To provide a formal introduction to asset pricing theories.

To help the students understand the assumptions and limitations of asset pricing models.

To explain the practical application of asset pricing models and demonstrate their role in real investment practice.

Module learning outcomes

By the end of this module, students will be expected to be able to:

Demonstrate a solid understanding of important topics such as expected utility, portfolio analysis, and asset pricing.

Explain and solve problems related to state price representations, pricing kernels, and risk-neutral valuation.

Understand the assumptions of asset pricing models, such as the CAPM and the Fama-French factor models, and learn how to implement them in practice.

Perform data manipulation and estimation of asset pricing models using state-of-the-art software.

Learn how asset pricing models are used in real investment.

Skills for Your Professional Life (Transferable Skills)

The module will help you with the following transferable skills:

Financial data analysis

Ability to estimate asset pricing models and evaluate the results

Literacy and numeracy skills

Personal time management in the context of coursework and exam

Module information

Lecture Content

Expected utility and risk aversion

Portfolio choice and state prices (1)

Portfolio choice and state prices (2)

Linear pricing and arbitrage

Capital Asset Pricing Model (CAPM)

Empirical Methods in Asset Pricing

Cross-section of stock returns

Asset Pricing Anomalies

Factor Models

Time Series Predictability

Learning and teaching methods

This module will be delivered via:

In the first half of the module there is a two-hour lecture each week and a one-hour class.
In the second half of the module there is a 2-hour lecture and a 2-hour workshop focusing on asset pricing applications using the R software (https://www.r-project.org/).

Bibliography

Levy, H. (2012) The capital asset pricing model in the 21st century: analytical, empirical, and behavioral perspectives. New York: Cambridge University Press. Available at: http://www.vlebooks.com/vleweb/product/openreader?id=essexacuk&accId=7572256&isbn=9781139183567.
Bali, T.G., Engle, R.F. and Murray, S. (2016b) Empirical asset pricing: the cross section of stock returns. Hoboken, New Jersey: John Wiley and Sons, Inc. Available at: https://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=1193806.
Cochrane, J.H. (2005a) Asset pricing. Rev. ed. Princeton, N.J.: Princeton University Press. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=nlebk&AN=329716.
Pennacchi, G.G. (2008a) Theory of asset pricing. Boston: Pearson/Addison-Wesley.
Pennacchi, G. (2007b) Theory of Asset Pricing. Pearson Education (US).
Pennacchi, G.G. (2008b) Theory of asset pricing. Boston: Pearson/Addison-Wesley.
Cochrane, J.H. (2005b) Asset pricing. Rev. ed. Princeton, N.J.: Princeton University Press. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=nlebk&AN=329716.
Pennacchi, G.G. (2008d) Theory of asset pricing. Boston: Pearson/Addison-Wesley.
Roll, R. (no date) ‘A critique of the asset pricing theory’s tests Part I: On past and potential testability of the theory’, Journal of Financial Economics, 4(2), pp. 129–176. Available at: https://www.sciencedirect.com/science/article/pii/0304405X77900095.
‘The Limits of Arbitrage’ (no date). Available at: https://onlinelibrary.wiley.com/doi/epdf/10.1111/j.1540-6261.1997.tb03807.x.
Cochrane, J.H. (2005e) Asset pricing. Rev. ed. Princeton, N.J.: Princeton University Press. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=nlebk&AN=329716.
Eugene F. Fama and Kenneth R. French (1996) ‘Multifactor Explanations of Asset Pricing Anomalies’, Journal of Finance, 51(1), pp. 55–84. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=9603262507&site=ehost-live.
Daniel, K. and Moskowitz, T.J. (2016) ‘Momentum crashes’, Journal of Financial Economics, 122(2), pp. 221–247. Available at: https://doi.org/10.1016/j.jfineco.2015.12.002.
ASNESS, C.S., MOSKOWITZ, T.J. and PEDERSEN, L.H. (2013) ‘Value and Momentum Everywhere’, The Journal of Finance, 68(3), pp. 929–985. Available at: https://doi.org/10.1111/jofi.12021.
Cochrane, J.H. (no date b) ‘Presidential Address: Discount Rates’. Available at: https://doi.org/10.1111/j.1540-6261.2011.01671.x.
John Y. Campbell and Robert J. Schiller (1988) ‘The dividend-price ratio and expectations of future dividends and discount factors’, Review of Financial Studies, 1(3), pp. 195–228. Available at: https://doi.org/10.1093/rfs/1.3.195.
Andrew Ang and Geert Bekaert (2007) ‘Stock Return Predictability: Is it There?’, Review of Financial Studies, 20(3), pp. 651–707. Available at: https://doi.org/10.1093/rfs/hhl021.
Martin Lettau and Sydney Ludvigson (2001) ‘Consumption, Aggregate Wealth, and Expected Stock Returns.’, Journal of Finance, 56(3), pp. 815–849. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=4673636&site=ehost-live.
Ang, A. et al. (2006) ‘The Cross-Section of Volatility and Expected Returns’, The Journal of Finance, 61(1), pp. 259–299. Available at: https://doi.org/10.1111/j.1540-6261.2006.00836.x.
Ang, A. (no date) ‘High idiosyncratic volatility and low returns: International and further U.S. evidence ?’, Journal of Financial Economics, 91(1), pp. 1–23. Available at: https://www.sciencedirect.com/science/article/pii/S0304405X08001542.

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	Coursework weighting
Coursework	2,000 word essay	23/01/2025	50%
Practical	In-class Test		50%

Exam format definitions

Remote, open book: Your exam will take place remotely via an online learning platform. You may refer to any physical or electronic materials during the exam.
In-person, open book: Your exam will take place on campus under invigilation. You may refer to any physical materials such as paper study notes or a textbook during the exam. Electronic devices may not be used in the exam.
In-person, open book (restricted): The exam will take place on campus under invigilation. You may refer only to specific physical materials such as a named textbook during the exam. Permitted materials will be specified by your department. Electronic devices may not be used in the exam.
In-person, closed book: The exam will take place on campus under invigilation. You may not refer to any physical materials or electronic devices during the exam. There may be times when a paper dictionary, for example, may be permitted in an otherwise closed book exam. Any exceptions will be specified by your department.

Your department will provide further guidance before your exams.

Overall assessment

Coursework	Exam
100%	0%

Reassessment

Coursework	Exam
100%	0%

Module supervisor and teaching staff

Supervisor: Dr Lazaros Symeonidis, email: l.symeonidis@essex.ac.uk.

Teaching staff: Dr Liya Shen & Dr Lazaros Symeonidis

Contact details: ebspgtad@essex.ac.uk

Availability

Available to incoming Essex Abroad / Exchange students: Yes

Available to Outside Option: No

Available to Audit: Yes

External examiner

Name: Dr Nikolaos Voukelatos

Institution: University of Kent

Academic role: Senior Lecturer in Finance

Resources

Teaching materials: Available via Moodle

Lecture recording: Of 19 hours, 19 (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), module, or event type.

Further information

Department website: Essex Business School

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Module Directory

BE352-7-AU-CO:Asset Pricing