Back at last offers what is at once a welcoming introduction to and a comprehensive. Kerry backs textbook on asset pricing elegantly covers two phd. By striking a balance between fundamental theories and cuttingedge research, pennacchi offers the reader a wellrounded introduction to modern asset pricing theory. In addition, less wealthy investors underdiversify more than wealthier. Lecture notes in macroeconomics asset pricing asset pricing sits on the border of two areas of macro. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for professors, the book will also serve as an essential reference. I argue that while the apt is compatible with the data available for testing theories of asset pricing, the capm is not. An introduction to risk and return concepts and evidence by franco modigliani and. However, many households that hold individual stocks directly hold only a single stock, and the median number of stocks held is only about three 30. Financial economics asset pricing and portfolio selection lecture 2. Unresolved issues in the asset pricing literature, such as the equity premium puzzle mehra and prescott 1985, are related to unsettled questions in the portfolio choice literature, such. It is easy to foresee this text becoming a new standard in finance phd courses as well as a valued reference for seasoned finance scholars everywhere. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for professors, the book will also serve as an essential reference for scholars and professionals, as it includes. Kerry back asset pricing solutions manual economics job.
An overview of asset pricing models andreas krause university of bath school of management phone. Portfolio choice and asset pricing in a status conscious economy. They derive their value from the values of other assets. I have both and i have studied backs version quite extensively. Asset pricing and portfolio choice theory financial management association survey and synthesis 97801953806. An overview of asset pricing models university of bath. It is written at an introductory level but includes detailed proofs and calculations as section appendices. Pdfasset pricing and portfolio choice theory free ebooks.
K back in asset pricing and portfolio choice theory, kerry e. The key message of the model is that the expected excess return on a risky. In asset pricing and portfolio choice theory kerry back has given us a comprehensive, rigorous and at the same time elegant and selfcontained treatment of the important developments in this vast literature. Pareto optimality implies a representative investor 163 7. Evidence from the portfolio framework, mpra paper 57726, university library of munich. This book is intended as a textbook for asset pricing theory courses at the ph. Pdf asset pricing and portfolio choice theory semantic scholar. In asset pricing and portfolio choice theory, kerry e. Asset pricing and portfolio choice theory second edition. Asset pricing and portfolio choice theory ebook, 2010 worldcat.
A key insight of modern portfolio theory is the merits of diversi cation. Back at last offers what is at once a welcoming introduction to and a comprehensive overview of asset pricing. Also, there shouldnt be a tilde on c 1, because it is not random. I should also disclose that kerry back wrote my phd application letter and i took the ap course with him at rice. Portfolio theory deals with the measurement of risk, and the. Good asset pricing empirical work always requires a thorough understanding of asset pricing theories. Asset pricing and portfolio choice theory financial. Theory of asset pricing unifies the central tenets and techniques of asset valuation into a single, comprehensive resource that is ideal for the first phd course in asset pricing.
The set of asset proportions at any time defines a portfolio. The capital asset pricing model and the arbitrage pricing theory. The first two parts of the book explain portfolio choice and asset pricing theory in single. Asset pricing and excess returns over the market return, working papers 201712, university of miami, department of economics. It contains portfolio choice theory, equilibrium and derivative pricing. The numerous challenging exercises are yet another big strength. Pdf download asset pricing and portfolio choice theory financial management association survey and download online.
On the other hand, the creation of assets is done through investment. These models are born out of modern portfolio theory, with the capital asset pricing model capm as the prototypical result. In this course, we will overview the tension between empirical findings and economic theories, and discuss recent theoretical developments that attempt to provide a better explanation of data. Back offers a concise yet comprehensive introduction to and overview of asset pricing. Since the returns on almost all assets are not fully predictable, the criterion has to take financial risk into account. F asset pricing and portfolio choice theory for kindle. Errata asset pricing and portfolio choice theory second. In the 2nd edition of asset pricing and portfolio choice theory, kerry e. Pdf download asset pricing and portfolio choice theory. Kerry back 2010, asset pricing and portfolio choice theory, oxford university press. The asset prices we discuss would include prices of bonds and stocks, interest rates, exchange rates, and derivatives of all these underlying. One objective of portfolio theory is the identification of the. Topics covered include i noarbitrage, arrowdebreu prices, and equivalent.
Asset pricing and portfolio choice theory second edition kerry back april 8, 2018 1. This definition is of fundamental importance in asset pricing. Jan 01, 2010 in asset pricing and portfolio choice theory, kerry e. Kerry back has created a masterful introduction to asset pricing and portfolio choice. For valuation, the focus throughout is on stochastic discount factors and their properties. Leroy and jan werner l, 2001, principles of financial economics, cambridge university press optional. Pdf asset pricing and portfolio choice theory financial.
The course then turns to the capital asset pricing model capm and consumptionbased asset pricing model, and develops dynamic portfolio choice problems and equilibrium asset pricing theories. Modern portfolio theory, capital market theory, and asset pricing models chapter pdf available november 2001 with 22,171 reads how we measure reads. The tradeoff between familiarity and diversification, with phelim boyle, raman uppal and tan wang. The coverage of topics is comprehensive, starting in a singleperiod setting and then moving naturally to dynamic models in both discrete and continuous time. Financial economics asset pricing and portfolio selection lecture 4 hongtao zhou 4 arbitrage and stochastic discount factors the previous chapter established that, under fairly restrictive conditions, there is a stochastic discount factor that is a function of market wealth in fact, proportional to a repre. The first two parts of the book explain portfolio choice and asset pricing theory in singleperiod, discretetime, and continuoustime models. The elements of the course that focus on derivative pricing are based on. Introduction to asset pricing theory the theory of asset pricing is concerned with explaining and determining prices of. Intended as a textbook for asset pricing theory courses at the ph. To study asset pricing theory, we will have to study how individual investors make decisions about consumption and investment. This book covers the classical results on singleperiod, discretetime, and continuoustime models of portfolio choice and asset pricing. Monetary economics this article compares two leading models of asset pricing. This ambiguity literature has led to a number of significant advances in our ability to rationalize empirical features of asset returns and portfolio decisions, such as the failure of the twofund separation. Asset pricing i pricing models and derivatives course description.
Essays on asset pricing and portfolio choice abstract the first chapter offers an explanation for the properties of the nominal term structure of interest rates and. Assuming that the wellbeing of an individual can be represented by some sort of utility function, we will have to maximize utility subject to various constraints, e. Everyday low prices and free delivery on eligible orders. In this section, we will consider an exception to that rule when we will look at assets with two specific characteristics. Chapter 5 option pricing theory and models in general, the value of any asset is the present value of the expected cash flows on that asset. For one, asset pricing models presume a theory of portfolio choice. We survey the literature that has explored the implications of decisionmaking under ambiguity for financial market outcomes, such as portfolio choice and equilibrium asset prices. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for professors, the book will also serve as an essential reference for scholars and.
His research has been published in academic journals such as journal of finance, journal of. These notes are based on asset pricing and portfolio choice theory by kerry back. The name stochastic discount factor reflects the fact that the price of an asset can be computed by discounting the future cash flow by the stochastic factor and then taking the expectation. The stochastic discount factor sdf is a concept in financial economics and mathematical finance. Asset pricing and portfolio choice theory edition 1 by. It also treats various proposed explanations for the equity premium and riskfree rate. Kerry back 2010, asset pricing and portfolio choice theory, oxford university press stephen f. Pdf modern portfolio theory, capital market theory, and. Intertemporal portfolio choice is the process of allocating ones investable wealth to various assets, especially financial assets, repeatedly over time, in such a way as to optimize some criterion. Optimal portfolio choice and the capital asset pricing model chapter synopsis 11. Equilibrium asset pricing and portfolio choice of month t rely on price and return data prior to month t. Portfolios from sorts by neil a chriss, robert almgren ssrn.
Orthogonal protections for quadratic utility 206 9. Financial economics asset pricing and portfolio selection. Thus, throughout the paper we refer to the sharpelintnerblack model as the capm. The aim of this course is to introduce students to the modern theory of asset pricing, portfolio theory and derivatives pricing. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for professors, the book will also serve as an essential. Equilibrium asset pricing and portfolio choice under. An individual user may print out a pdf of a single chapter of a monograph in oso for personal use.
Leroy and jan werner l, 2001, principles of financial. Errata asset pricing and portfolio choice theory second edition kerry back june 5, 2019. The foundation for this theory was substantially later expanded upon by markowitz fellow nobel prize cowinner, william sharpe, who is widely known for his 1964 capital asset pricing model work on the theory of financial asset price formation. Countercyclical risks and portfolio choice over the life. Jun 25, 2019 arbitrage pricing theory apt is a multifactor asset pricing model based on the idea that an assets returns can be predicted using the linear relationship between the assets expected return. Once such a normative relationship between risk and return is obtained, it has an obvious. Asset pricing and portfolio choice theory oxford scholarship. It will be useful to graduate students and advanced undergraduate students in economics, finance, financial engineering, and management.
Sep 10, 2010 kerry back has created a masterful introduction to asset pricing and portfolio choice. Portfolio theory and asset pricing elton, edwin j on. Asset pricing and portfolio choice theory this book covers the classical results on singleperiod, discretetime, and continuoustime models of portfolio choice and asset pricing. Fin9014 asset pricing theory and empirical methods in. A preference ordering is i complete, ii transitive, iii continuous and iv relatively stable can be represented by a utility function, i. It covers the classical results on singleperiod, discretetime, and continuoustime models. Get asset pricing and portfolio choice theory book by oxford university press usa pdf file for free from our online library. Read online now asset pricing and portfolio choice theory book by oxford university press usa ebook pdf at our library. Taylor series approximations to expected utility and optimal portfolio choice, with georgios. Currently, he teaches introductory and advanced asset pricing theory to phd students in the jones school and in the department of economics. Consider a portfolio p with x invested in a risky portfolio q, and 1x invested in the riskfree asset.
Furthermore, we exhibit the practical relevance and assumptions of these models. In our partially revealing dynamic rational expectations equilibrium, portfolio separation fails and indexing is not optimal. Firstly, it serves as a guide to understanding some of the important intuitions from portfolio theory and the capital asset pricing model capm. It also treats asymmetric information, production models, various proposed explanations for the equity premium puzzle, and topics important for behavioral finance.
Modern portfolio theory produces an optimal portfolio from estimates of expected returns and a covariance matrix. Asset pricing and portfolio choice theory by kerry back. Asset pricing and portfolio choice theory kerry back. Back offers a concise yet comprehensive introduction to and overview.
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