Asset Pricing Models

This course is part of Finance Specialization

Instructor: Giovanni Walter Puopolo

Access provided by SGCSRC

5 modules

Gain insight into a topic and learn the fundamentals.

Intermediate level

Recommended experience

9 hours to complete

Flexible schedule

Learn at your own pace

5 modules

Gain insight into a topic and learn the fundamentals.

Intermediate level

Recommended experience

9 hours to complete

Flexible schedule

Learn at your own pace

What you'll learn

Understand the principles connected to investors' portfolio choices and the criteria that determine the prices of financial instruments
Understand the main functions performed by the financial markets
Analyzing how their introduction influences the households' savings choices and companies' investment in an economy without uncertainty

Skills you'll gain

Details to know

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Assessments

16 assignments

Taught in English

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This course is part of the Finance Specialization

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There are 5 modules in this course

The course covers several advanced topics in asset pricing, trading-off risks and return, and portfolio optimization. More precisely, students will first analyze two relevant extensions of the Capital Asset Pricing Model (CAPM) and learn how to determine the corresponding equilibrium in financial markets.

Next, they will learn how to estimate empirically the risk-return relationship predicted by the Capital Asset Pricing Model. Students will also analyze two pricing models alternative to the CAPM. In the Arbitrage Pricing Theory, they will learn how to determine assets expected returns based on multiple risk factors and absence of arbitrage opportunities. In the Consumption Capital Asset Pricing Model, instead, they will learn how to solve the investors' joint consumption/investment decision problem and how to compute the equilibrium asset prices and expected returns in a dynamic pure exchange economy. Finally, the course concludes with a focus on the pricing of fixed income instruments.

By the end of this week you will learn: how to determine the equilibrium in financial markets under two distinct scenarios within the Capital Asset Pricing Model framework. First, you'll explore equilibrium determination when there is an absence of a riskless security. Second, you'll delve into the complexities of equilibrium determination when investors' preferences are dynamic, and stock returns follow a normal distribution.

What's included

19 videos3 readings3 assignments

19 videos Total 39 minutes

Introduction 1 minute
Introduction 1 minute
Financial Markets with no riskless (safe) asset 1 minute
Zero Beta Portfolio 2 minutes
CAPM without riskless asset 2 minutes
Risk-return tradeoff without a riskless asset /1 1 minute
Risk-return tradeoff without a riskless asset /2 5 minutes
Risk-return tradeoff without a riskless asset /3 6 minutes
Risk-return tradeoff without a riskless asset /4 4 minutes
The importance of short selling 1 minute
Asset prices under normal distribution 2 minutes
Log Returns 3 minutes
Merton's Intertemporal CAPM - step 1 2 minutes
Merton's Intertemporal CAPM - step 2 2 minutes
Merton's Intertemporal CAPM - step 3 2 minutes
Merton's Intertemporal CAPM - step 4 1 minute
Optimal Portfolio Shares 2 minutes
Equilibrium stock returns - Constant Investment opportunity Set 1 minute
Equilibrium stock returns - Time-Varying riskfree rate 1 minute

3 readings Total 21 minutes

Zero Beta CAPM 10 minutes
Intertemporal CAPM 10 minutes
To sum up 1 minute

3 assignments Total 49 minutes

Zero Beta CAPM 15 minutes
Intertemporal CAPM 4 minutes
Capital Asset Pricing Model (CAPM) Extensions 30 minutes

By the end of this week you will learn how to estimate empirically the risk-return relationship predicted by the Capital Asset Pricing Model

What's included

17 videos4 readings3 assignments

17 videos Total 26 minutes

Introduction 1 minute
Realized returns and the CAPM 2 minutes
The Market Model /1 3 minutes
The Market Model /2 1 minute
Empirical tests of the CAPM 2 minutes
Roll Critique /1 2 minutes
Roll Critique /2 1 minute
Roll Critique /3 1 minute
Time - series regressions /1 2 minutes
Time - series regressions /2 1 minute
Time - series regressions /3 2 minutes
Time - series regressions /4 1 minute
Cross - sectional regressions /1 1 minute
Cross - sectional regressions /2 1 minute
Cross - sectional regressions /3 1 minute
Fama - MacBeth Method 1 minute
General Findings 1 minute

4 readings Total 10 minutes

Testable implication of the CAPM 3 minutes
Roll Critique 1 minute
Testing Methodologies 5 minutes
To sum up 1 minute

3 assignments Total 45 minutes

Testable implication of the CAPM 15 minutes
Testing Methodologies 15 minutes
Testing the Capital Asset Pricing Model (CAPM) 15 minutes

By the end of this week you will learn how to determine assets expected returns based on multiple risk factors and absence of arbitrage opportunities

What's included

24 videos4 readings4 assignments

24 videos Total 36 minutes

Introduction 1 minute
Definition of Arbitrage /1 2 minutes
Definition of Arbitrage /2 2 minutes
The Arbitrage Pricing Theory 2 minutes
The dynamics of realized returns /1 2 minutes
The dynamics of realized returns /2 3 minutes
Assumptions of APT 2 minutes
The Market Model /1 3 minutes
The Market Model /2 2 minutes
The Market Model /3 1 minute
The Market Model /4 1 minute
The Market Model /5 1 minute
Two Factors Model /1 1 minute
Two Factors Model /2 2 minutes
Two Factors Model /3 1 minute
Two Factors Model /4 1 minute
Two Factors Model /5 1 minute
The general case /1 2 minutes
The general case /2 2 minutes
The general case /3 1 minute
Strength and Weaknesses of APT 1 minute
Chen, Roll and Ross (1986) 1 minute
Fama and French (1993) 1 minute
Statistical Approach 1 minute

4 readings Total 38 minutes

The APT model and definition of arbitrage 3 minutes
The market model 10 minutes
Multiple risks factors 15 minutes
To sum up 10 minutes

4 assignments Total 60 minutes

The APT model and definition of arbitrage 10 minutes
The market model 10 minutes
Multiple risks factors 10 minutes
The Arbitrage Pricing Theory (APT) 30 minutes

By the end of this week, you will acquire a comprehensive understanding of determining equilibrium in a collaborative exchange economy, where agents make joint decisions on consumption and financial asset investment. Additionally, you will learn how to compute equilibrium asset prices and expected returns.

What's included

22 videos4 readings3 assignments

22 videos Total 32 minutes

Introduction 1 minute
The CAPM assumptions 2 minutes
Empirical failures of the CAPM 1 minute
Explore new directions 1 minute
A simplified Lucas tree economy /1 2 minutes
A simplified Lucas tree economy /2 2 minutes
Solving the model 2 minutes
Equilibrium in the markets 2 minutes
Equilibrium prices 1 minute
Equilibrium expected returns 1 minute
Extending the model to N risky assets 1 minute
Solving the model and equilibrium prices 2 minutes
Including also a safe asset 2 minutes
Dynamic Lucas tree economy 2 minutes
The investor dynamic problem /1 1 minute
The investor dynamic problem /2 1 minute
The investor dynamic problem /3 2 minutes
The investor dynamic problem /4 1 minute
The investor dynamic problem /5 0 minutes
Equilibrium returns /1 1 minute
Equilibrium returns /2 1 minute
Equilibrium returns /3 1 minute

4 readings Total 31 minutes

Static CCAPM 10 minutes
Dynamic CCAPM 10 minutes
The Equity Premium Puzzle 10 minutes
To sum up 1 minute

3 assignments Total 55 minutes

Static CCAPM 15 minutes
Dynamic CCAPM 10 minutes
The Consumption Capital Asset Pricing Model (CCAPM) 30 minutes

By the end of this week, you will gain a comprehensive knowledge of fixed income securities, including an understanding of their diverse characteristics, and the ability to assess their pricing and implied returns