General Remarks

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Course Outline

1. Introduction: finance basics
   Time value of money, compounding, measuring return, discount rates, dividend discount model, expected utility
2. The stochastic discount factor
   Using the stochastic discount factor approach to understand returns on risky and risk-free assets
3. Factor pricing models
   The CAPM and the empirical evidence, Fama-French-3-factors
4. Aggregate stock price behavior
   Equity premium puzzle, time series predictability
5. Rationality and Behavioral Finance
   Bubbles, Prospect Theory

Time Table

Literature

• Cochrane: Asset Pricing, 2005, in particular: chapters 1 (not 1.5), 9 (only 9.1), 12 (only 12.3), 20, 21 (21.1), Revised Edition. (1st edition will do but check out the typo list on Cochranes homepage.)
• The 1st chapter of Cochrane is freely available over the website of the Princeton University Press.
• You find a list of papers in the slides.