Ph
D Course, Winter-Spring of 2003.
Updated March 7, 2003
The course is expected to be taught in Winter-Spring of 2003 This is reading course, so no precise schedule will exist...
·
The
required reading assignment for each session consists of one journal article.
Students are expected to have carefully read the article marked by double star (**).
·
Each
student should present 3 articles and do 3 referee presentations (a critique of
an article presented by another student). The presentations should be deep
enough to give the audience the understanding of (a) what is research question?
(b) what is in the toolbox? (c)were the issues addressed? and (c) any tricks?
·
Prerequisites
are Finance I and Finance II.
·
In
order to obtain credit, you should do presentations/discussions (see above) and
either do a term paper or small empirical project.
·
I
hope that the project can lead to some research ideas that can be used in your
thesis.
·
Most
of the papers are available electronically either from HHS library web site or
from www.ssrn.com. If you cannot find some
paper, please let me know.
·
I
do not expect all the topics to be covered. However, the reading list will
provide you with some starting points in your future reading if you desire to do
it on your own.
·
**- Important paper (does not mean that the rest is not important!!!)
*** - Papers we are going to discuss in class
Assistant Professor Andrei Simonov
Department of Finance, Stockholm School of Economics
Room 677, Tel: 736 9159, e-mail Andrei
Simonov
Marita Rosing
Department of Finance, Stockholm School of Economics
Room 665, Tel: 736 9140, e-mail Marita
Rosing
Shleifer,
Andrei (2000), Inefficient Markets: An Introduction to Behavioral Finance,
Oxford University Press.
Shefrin, Hersh
(1999), Beyond Fear and Greed, Harvard Business School Press.
Shiller, Robert
(2000), Irrational Exuberance, Princeton University Press.
* De Bondt,
Werner, and Richard Thaler (1995), “Financial Decision Making in Markets and
Firms”, in Jarrow, Maksimovic, and Ziemba (eds.) Finance,
Elsevier-North Holland.
** Shiller,
Robert (1984), “Stock Prices and Social Dynamics”, Brookings Papers on
Economic Activity 2,
457-498.
***DeLong,
J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert Waldmann,
"Noise Trader Risk in Financial Markets", Journal of Political
Economy 98, 703-738
* Lamont, Owen,
and Richard Thaler (2000), “Can the Market Add and Subtract? Mispricing in
Tech Stock Carve-Outs,” Working Paper, University of Chicago.
***Shleifer,
Andrei, and Robert Vishny (1997), “Limits of Arbitrage”, Journal of
Finance 52, 35-55
***Shleifer,
Andrei (1986), “Do Demand Curves for Stocks Slope Down?” Journal of
Finance 41, 579-90.
Monday, March 31, 13.15-14.45 room 350
***Baker, Malcolm, and Savasoglu, Serkan, 2002, “Limited Arbitrage in
Mergers and Acquisitions,” Journal of Financial Economics, Vol.
64(1), 91-115.
*** Froot, Kenneth and Emil Dabora, 1999,“How are stock prices affected
by the location of trade,”Journal of Financial Economics, Vol. 53 (2),
189-216.
Greenwood, Robin, 2002, “Large Events and Limited Arbitrage: Evidence
from a Japanese Stock Index Redefinition, ” Harvard University mimeo.
Morck, Randall and Fan Yang, 2001, “The Mysterious Growing Value of
S&P 500 Membership,”University of Alberta mimeo.
***Mitchell, Mark, Todd Pulvino, and Erik Stafford, 2002, “Limited
Arbitrage in Equity Markets,” Journal of Finance, Vol
57(2).
**Pontiff,
Jeff (1996), “Costly Arbitrage: Evidence from Closed-end funds”, Quarterly
Journal of Economics 111, 1135-52.
* Rashes, Michael, 2001, “Massively Confused Investors Making
Conspicuously Ignorant Choices MCI-MCIC),” Journal of Finance, Vol
56(5), 1911-1927.
Scholes, Myron, 2000, “Crisis and Risk Management” AEA Papers and
Proceedings, Vol. 90(2)
* Wurgler, Jeffrey, and Ekatherina Zhuravaskya, 2002, “Does Arbitrage
Flatten Demand Curves for Stocks,” Journal of Business,
vol. 75(4), 583-608.
Session 3: Psychology
and Modeling Behavioral Biases
Wednesday,
Apr. 9, 10:15-12:00, Room 349
***Angeletos,
George-Marios, David Laibson, Andrea Repetto, Jeremy Tobacman, and Stephen
Weinberg. “The Hyperbolic Buffer Stock Model: Calibration, Simulation, and
Empirical Evaluation,” Journal of
Economic Perspectives, forthcoming, 2001.
Babcock,
Linda, George Loewenstein, S. Issacharoff, and Colin Camerer, “Biased
judgments of fairness in bargaining,” American
Economic Review, December 1995, 1337-1343
* Camerer,
Colin (1995), “Individual Decision Making”, in Kagel and Roth (eds.), Handbook
of Experimental Economics, Princeton University Press.
Camerer, Colin “Behavioral game theory: Formalizing the psychology of strategic thinking,” unpublished paper. 2000.
* Gabaix, Xavier and David
Laibson, “A
New Challenge for Economics: The Frame Problem"
I. Broca and J. Carillo eds., forthcoming in Collected Essays in
Psychology and Economics, Oxford University Press.
Gabaix Xavier and David Laibson (2000) “Bounded Rationality and Directed Cognition” Harvard Mimeo
*Faruk Gul and
Pesendorfer Wolfgang (1999), “Self-control and the theory of consumption”,
Mimeo Princeton Uninivesity
**Faruk
Gul and Pesendorfer Wolfgang (2001), “Temptation and self-control”,
Econometrica
Faruk Gul and
Pesendorfer Wolfgang (2001), “A theory of addiction”, Mimeo Princeton
University
* Harris Christopher and David Laibson (2001)
“Instantaneous
Gratification” Harvard Mimeo.
***Harris
Christopher and David Laibson (2001) “Hyperbolic
Discounting and Consumption” Econometrica.
Chris Harris and David Laibson “Dynamic
Choices of Hyperbolic Consumers”, Harvard Mimeo
***Thaler,
Richard and Hersh M. Shefrin (1981), “An Economic Theory of Self-Control,” Journal of Political Economy, 89, 392-406.
Session 4: Prospect
Theory and Loss Aversion
*** Kahneman,
Daniel, and Mark Riepe (1998), “Aspects of Investor Psychology”, Journal
of Portfolio Management 24, 52-65.
* Kahneman,
Daniel, and Amos Tversky (1974), “Judgment Under Uncertainty: Heuristics and
Biases”, Science 185, 1124-31.
***Kahneman,
Daniel, and Amos Tversky (1979), “Prospect Theory: An Analysis of Decision
Under Risk”, Econometrica 47, 263-91.
Rabin, Matthew,
and Richard Thaler (2001), “Risk Aversion,”
Journal of
Economic Perspectives 15(1), 219-232.
Rabin Matthew,
(1998) “Psychology and Economics”, Journal of Economic Literature,
11-46
***Thaler, Richard (1999), “Mental Accounting Matters”, Journal of Behavioral Decision Making, vol. 12, pp. 183-206.
* Thaler,
Richard, Amos Tversky, Daniel Kahneman, and Alan Schwartz (1997), “The Effect
of
Session 5:
Evidence of Investor Behavior
Barber, Brad, and Terrance Odean (2001), "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment" with Brad Barber, Quarterly Journal of Economics, February 2001, Vol. 116, No. 1, 261-292.
*** Barber, Brad, and Terrance Odean (2000), Online Investors: Do the Slow Die First? , Review of Financial Studies, March 2002, Vol. 15, No. 2, 455-487.
* Barber, Brad,
Terrance Odean, and Lu Zheng (2000), Out
of Sight, Out of Mind: The Effects of Expenses on Mutual Fund Flows, working paper, UC-Davis.
**Benartzi, Shlomo, and Richard Thaler (2001), “Naïve Diversification Strategies in Defined Contribution Savings Plans”, AER vol 91(1) pp. 79-98.
***Genesove,
and Mayer (2001), “Loss Aversion and Seller Behavior: Evidence from the
Housing Market”, Quarterly Journal of Economics 116(4) 1233-1260
Grinblatt,
Mark, and Matti Keloharju (2001), “Distance, Language, and Culture Bias: The Role of
Investor Sophistication,” Journa of Finance 56(3), 1053-73 .
Heath, Chip,
Steven Huddart and Mark Lang, “Psychological Factors and Stock Option
Exercises”, Quarterly Journal of Economics 114, 601-627
***Huberman, Gur, “Familiarity Breeds Investment”, Rev. Financ. Stud. 2001 14: 659-680
* Odean, Terrance (1998), "Are Investors Reluctant to Realize Their Losses?", Journal of Finance, Vol. LIII, No. 5, October 1998, 1775-1798.
Odean, Terrance (1998), "Do Investors Trade Too Much?", American Economic Review, Vol. 89, December 1999, 1279-1298.
***Barber & Odean FAJ paper (short review of their other papers)
BEHAVIORAL BIASES AND ASSET
PRICING
Session 6:
The equity premium puzzle
a) Facts and
Rational Approaches
**Campbell, John Y. (1998), "Asset Prices, Consumption, and the Business Cycle", Chapter 19 in Handbook of Macroeconomics, John Taylor and Michael Woodford eds., North-Holland, Amsterdam, 1999.
Campbell, John
Y. and Robert J. Shiller (1998), "Valuation Ratios and the Long-Run Stock
Market Outlook", Journal of Portfolio Management.
***Cochrane, John, “Where is the Market Going? Uncertain Facts and Novel Theories”, Economic Perspectives, Federal Reserve Bank of Chicago, November/December 1997..
Fama,
Eugene F. and Kenneth R. French (1988), “Dividend Yields and Expected Stock
Returns”, Journal of Financial Economics 22, 3-25.
Mehra, Rajnish
and Edward Prescott (1985), "The Equity Premium: A Puzzle", Journal
of Monetary Economics 15, 145-161.
***Rajnish Mehra The equity premium: Why is it a puzzle?; ; Financial Analysts Journal, Charlottesville; Jan/Feb 2003; Vol. 59, Iss. 1; pg. 54, 16 pgs
* Shiller,
Robert (1981), “Do Stock Prices Move too Much to be Justified by Subsequent
Changes in Dividends?”, American Economic Review 71, 421-436
b)
Behavioral Approaches
***Barberis,
Nicholas, Ming Huang, and Tano Santos (2001), “Prospect Theory and Asset
Prices”, Quarterly Journal of Economics, Volume: 116 Number:
1 Page: 1 - 53.
***Barberis,
Nicholas, Ming Huang, and Tano Santos (2001), Mental
Accounting, Loss Aversion, and Individual Stock Returns" ,Journal
of Finance, August 2001.
***Bernartzi,
Shlomo, and Richard Thaler (1995), “Myopic Loss Aversion and the Equity
Premium Puzzle”, Quarterly Journal of Economics 110, 75-92.
* Benartzi
Shlomo, and Richard Thaler (1999), “Risk Aversion or Myopia? Choices in
Repeated Gambles and Retirement Investments,” Management Science 45, 364-381.
* Gneezy, Uri,
and Jan Potters (1997), “An Experiment on Risk Taking and Evaluation
Periods”, Quarterly Journal of Economics 112, 631-645.
Lakonishok,
Josef, Andrei Shleifer, and Robert Vishny. 1994. “Contrarian investment,
extrapolation, and risk,” Journal of
Finance 49, 1541-1578.
*
Sendhil Mullainathan and Richard Thaler. “Behavioral Economics,” NBER
Working paper 7948, October 2000.
Session 7:
The volatility puzzle
Wednesday, 14th of May, 10:15am-noon, Room 328.
* Barksy,
Robert, and Brad De Long (1992), “Why does the stock market fluctuate?”, Quarterly
Journal of Economics 107, 291-311.
* Modigliani,
Franco and Richard Cohn (1974), “Inflation and the Stock Market, Financial
Analysts Journal 35, 24-44.
**Thaler,
Richard, and Eric Johnson (1985), “Gambling with the House Money and Trying to
Break Even: The Effects of Prior Outcomes on Risky Choice”, Management
Science 36, 643
Session 8: Cross-sectional
pricing implications
a) Facts
Banz, Rolf
(1981), “The Relation between Return and Market Value of Common Stocks”, Journal
of Financial Economics 9, 3-18.
Bernard, Victor
(1992), “Stock Price Reactions to Earnings Announcements”, in Thaler (ed.) Advances
in Behavioral Finance, ch.11.
* Chopra,
Navin, Josef Lakonishok, and Jay Ritter (1992), “Measuring Abnormal
Performance: Do stocks overreact?”, Journal of Financial Economics 31:
235-268
* Cochrane,
John, “New Facts in Finance”, Economic Perspectives, Federal Reserve
Bank of Chicago, Third Quarter 1999.
***De Bondt,
Werner, and Richard Thaler (1985), “Does the Stock Market Overreact?”, Journal
of Finance 40, 793-808
**Fama,
Eugene (1991), "Efficient Capital Markets: II", Journal of Finance 46,
1575-1618.
Fama, Eugene F.
and Kenneth R. French (1992),"The Cross-Section of Expected Stock
Returns", Journal of Finance 47, 427-465.
Ikenberry,
David, Josef Lakonishok, and Theo Vermaelen (1995), “Market Underreaction to
Open Market Share Repurchases”, Journal of Financial Economics 39,
181-208.
***Jegadeesh,
Narasimhan and Sheridan Titman (1993), "Returns to Buying Winners and
Selling Losers: Implications for Stock Market Efficiency", Journal of
Finance 48, 65-91.
***La
Porta, Rafael, Josef Lakonishok, Andrei Shleifer, and Robert W. Vishny (1994),
"Good News for Value Stocks: Further Evidence on Market Efficiency”, Journal
of Finance 49, 1541-1578.
Lakonishok,
Josef and Seymour Smidt (1988), “Are Seasonal Anomalies Real? A Ninety Year
Perspective”, Review of Financial Studies 3, 257-280.
b) Rational
Approaches
Daniel, Kent
and Sheridan Titman (1997), "Evidence on the Characteristics of
Cross-Sectional Variation in Stock Returns", Journal of Finance 52,
1-33.
**Fama,
Eugene F. and Kenneth R. French (1993), “Common Risk Factors in the Returns of
Bonds and Stocks”, Journal of Financial Economics 33, 3-56.
**Fama,
Eugene F. and Kenneth R. French (1996), "Multifactor Explanations of Asset
Pricing Anomalies", Journal of Finance 51, 55-84.
Fama, Eugene F., 1998, “Market efficiency, long-term returns, and
behavioral finance,” Journal of Financial Economics, Vol. 49(3),
283-306.
Lakonishok, Josef, Andrei Shleifer, and Robert Vishny, 1994,
“Contrarian investment, extrapolation, and risk,” Journal of Finance Vol.
49(5), 1541-1578.
La Porta, Rafael, 1996, “Expectations and the cross-section of stock
returns,” Journal of Finance, 51(5), 1715-1742.
c)
Behavioral Approaches (Beliefs)
**Barberis,
Nicholas, Andrei Shleifer, and Robert Vishny (1998), "A Model of Investor
Sentiment", Journal of Financial Economics 49, 307-345
***Daniel, Kent,
David Hirshleifer, and Avanidhar Subrahmanyam (1998), “Investor Psychology and
Security Market Under- and Overreactions”, Journal of Finance 53,
1839-1885
**De
Long, Brad, Andrei Shleifer, Lawrence Summers, Michael Waldmann (1990),
“Positive Feedback Investment Strategies and Destabilizing Rational
Speculation”, Journal of Finance 45,
***Hong,
Harrison, and Jeremy Stein (1999), “A Unified Theory of Underreaction,
Momentum Trading, and Overreaction in Asset Markets”, Journal of Finance 54,
2143-2184
***Hong,
Harrison, Terence Lim, and Jeremy Stein (2000), “Bad News Travels Slowly:
Size, Analyst Coverage, and the Profitability of Momentum Strategies”, Journal
of Finance 55, 265-295.
Session 9:
Market Frictions and Short sales constraints
May 21st, 10:15-12:00, room 349.
***Chen,
Joseph, Harrison Hong, and Jeremy Stein (2002), “Breadth of Ownership and
Stock Returns”, Journal of Financial
Economics, Vol. 66, No. 2-3, November 2002
.
**Hong,
Harrison, and Jeremy Stein (1999), “Differences of Opinion, Rational
Arbitrage, and Market Crashes”, working paper, Stanford University.
***Hong
Harrison, Joseph Chen and Jeremy Stein (2001), “Forecasting Crashes: Trading
Volume,Past Returns and Conditional Skewness in Stock Prices”, Journal
of Financial Economics, Vol 61, No.3, pp. 345-381.
* Jones, Charles and Owen Lamont, 2001, “Short sale constraints and
stock returns,” University of Chicago Mimeo.
***Brav and
Heaton, 2002, Competing theories of Financial
Anomalies, Review of Financial
Studies, March
2002, vol. 15, no. 2, pp. 575-606..
Cao, Coval and
Hirshleifer, 2002, Sidelines investors, trading generated-news and security
returns, Review of Financial Studies, 15.
* Scherbina,
Anna (2000), “Stock Prices and Differences of Opinion: Empirical Evidence that
Stock Prices Reflect Optimism”, working paper, Northwestern University.
Session 10:
Styles
* Amihud, Yakov and Haim Mendelson, 1986, “Asset pricing and the
bid-ask spread,” Journal of Financial Economics 17, 223-49.
* Chordia, Tarun, Richard Roll and Avanidhar Subrahmanyam, 2000,
“Commonality in liquidity,”Journal of Financial Economics 56, 3-28.
**Baker, Malcolm and Jeremy Stein, 2001, “Market liquidity as a
sentiment indicator,” Harvard University working paper.
**Barberis, Nicholas and Andrei Shleifer, 2001, “Style Investing,”
Harvard mimeo.
**Barberis, Nicholas, Andrei Shleifer, and Jeffrey Wurgler, 2001,
“Comovement,” Harvard Mimeo.
**Mullainathan, Sendhil, 2001, “Thinking through categories,” MIT
mimeo,
Sessions 11 and 12: Corporate Structure
May 28th, 13:15-15:00, room 975A.
***Baker, Malcolm, Jeremy Stein, and Jeffrey Wurgler, 2001, “When Does
the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms,”
**Baker, Malcolm, Robin Greenwood, and Jeffrey Wurgler, 2001, “Do Firms
Borrow at the Lowest-Cost Maturity? The Long-Term Share in Debt Issues and
Predictable Variation in Bond Returns,” Harvard mimeo.
**Baker,
Malcolm, and Jeffrey Wurgler (2000), “The Equity Share in New Issues and
Aggregate Stock Returns,” Journal of Finance 55, 2219-2257
***Baker, Malcolm and Jeffrey Wurgler, 2002, “Market Timing and Capital Structure,” Journal of Finance, Vol. 57(1), 1-32.
Blanchard,
Olivier, Changyong Rhee, and Lawrence Summers (1993), “The Stock Market,
Profit, and Investment”, Quarterly Journal of Economics.
**Brav, Alon, and Paul A. Gompers, 2001, “The role of lock-ups in
initial public offerings,” Review of Financial Studies forthcoming.
* Gompers, Paul A., and Josh Lerner, 2001, “The Really Long-Run
Performance of Initial Public Offerings: Evidence from the Pre-Nasdaq Period,
1933-1972.” NBER Working Paper 8505
**Heaton,
J.B., “Managerial Optimism and Corporate Finance”, working paper, University
of Chicago.
Lintner, John
(1956), “Distribution of Incomes of Corporations among Dividends, Retained
Earnings and Taxes”, American Economic Review 46, 97-113.
* Loughran, Tim, and Jay Ritter, 2002, “A Review of IPO Activity,
Pricing, and Allocations,” University of Florida working paper.
**Loughran,
Tim, and Jay Ritter (1995), “The New Issues Puzzle”, Journal of Finance 50,
23-50.
* Michaely,
Roni, Richard Thaler, and Kent Womack, “Price Reactions to Dividend
Initiations and Omissions”, Journal of Finance 50, 573-608
Miller, Merton
(1986), “Behavioral Rationality in Finance: The Case of Dividends”, in
Hogarth and Reder (eds.) Rational Choice, University of Chicago Press.
**Morck,
Randall, Andrei Shleifer, and Robert Vishny (1993), “The Stock Market and
Investment: Is the Market a Sideshow?” Brookings Papers on Economic Activity.
Ofek, Eli and Matthew Richardson, 2001, “Dotcom Mania: The Rise and
Fall of Internet Stock Prices,” NBER Working Paper 8630.
Roll, Richard
(1986), “The Hubris Hypothesis of Corporate Takeovers,” Journal of
Business, 59, 197-216.
* Shefrin,
Hersh and Meir Statman (1984), “Explaining Investor Preference for Cash
Dividends”, Journal of Financial Economics 13, 253-282.
**Shleifer, Andrei and Robert Vishny, 2001, “Stock Market Driven
Acquisitions,” Harvard mimeo.
***Stein,
Jeremy (1996), “Rational Capital Budgeting in an Irrational World”, Journal
of Business 69, 429-55.
***John R. Graham, Campbell R. Harvey (2001) "The theory and practice of corporate finance: Evidence from the field", Journal of Financial Economic vol. 61.
*** Heaton, . B., Gervais, Simon, and Odean, Terry (2203), Capital Budgeting in the Presence of Managerial Overconfidence and Optimism. Working paper