Asset Pricing Theory (HEC)

Objective

https://phd-in-economics.com/docs/courses/Asset%20Pricing%20Theory%202025-2026.pdf

This course is an introduction to the modern theory of asset pricing and portfolio theory. It develops foundations for more specialized courses on securities valuation (e.g., derivatives  pricing, continuous time finance, empirical estimation of asset pricing models, market microstructure, limits to arbitrage, behavioral finance etc...). Topics covered include (i)  CAPM, mean variance analysis, CCAPM, Arrow Debreu pricing, factor pricing, arbitrage, (ii)  pricing anomalies, (iii) asymmetric information and asset pricing, and (iv) liquidity and asset pricing.

At the end of the course, the students will have acquired knowledge of

• Economics of asset pricing models
• Foundations of main asset pricing models
• Factor pricing models and their interpretation
• Effects of asymmetric information on asset prices and the notion of price informativeness

Planning

• Part 1: Economic Foundation
  • ArrowDebreu model
  • Risk sharing
  • Stochastic Discount Factor and risk neutral probabilities
  • Consumption based asset pricing
• Part 2: Mean variance analysis and the CAPM
  • Efficient frontier
  • Sharpe ratios
  • CAPM
• Part 3: Factor Pricing Models and Pricing Anomalies
  • Factor pricing models
  • Pricing anomalies and alphas,
  • Liquidity and asset prices
• Part 4: Intertemporal models
  • Present value relationships
  • Excess volatility
  • Asset pricing puzzles
• Part 5: Asymmetric Information and Liquidity
  • Rational expectations equilibria
  • Adverse selection and liquidity
  • Value of information in securities markets
  • Liquidity and asset prices