Modern portfolio theory, capital market theory, and asset pricing models chapter pdf available november 2001 with 22,171 reads how we measure reads. Asset pricing and portfolio choice theory second edition kerry back april 8, 2018 1. It also treats asymmetric information, production models, various proposed explanations for the equity premium puzzle, and topics important for behavioral finance. Thus, we only use 66 information available to market participants when they chose their portfolios. Thus asset pricing is an extension of consumption theory. 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.
Kerry back has created a masterful introduction to asset pricing and portfolio choice. Thus, throughout the paper we refer to the sharpelintnerblack model as the capm. They derive their value from the values of other assets. Consider a portfolio p with x invested in a risky portfolio q, and 1x invested in the riskfree asset.
Back offers a concise yet comprehensive introduction to and overview of asset pricing. Kerry back 2010, asset pricing and portfolio choice theory, oxford university press. Orthogonal protections for quadratic utility 206 9. Can anyone comment on asset pricing and portfolio choice. It will be useful to graduate students and advanced undergraduate students in economics, finance, financial engineering, and management. In the 2nd edition of asset pricing and portfolio choice theory, kerry e. Lecture notes in macroeconomics asset pricing asset pricing sits on the border of two areas of macro. Firstly, it serves as a guide to understanding some of the important intuitions from portfolio theory and the capital asset pricing model capm.
Asset pricing and excess returns over the market return, working papers 201712, university of miami, department of economics. Countercyclical risks and portfolio choice over the life. Since the returns on almost all assets are not fully predictable, the criterion has to take financial risk into account. Equilibrium asset pricing and portfolio choice under asymmetric information abstract we analyze theoretically and empirically the implications of information asymmetry for equilibrium asset pricing and portfolio choice. An individual user may print out a pdf of a single chapter of a monograph in oso for personal use.
The coverage of topics is comprehensive, starting in a singleperiod setting and then moving naturally to dynamic models in both discrete and continuous time. 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. By striking a balance between fundamental theories and cuttingedge research, pennacchi offers the reader a wellrounded introduction to modern asset pricing theory. Buy asset pricing and portfolio choice theory financial management association survey and synthesis series 2 by kerry e. 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. Read online now asset pricing and portfolio choice theory book by oxford university press usa ebook pdf at our library. Pdf asset pricing and portfolio choice theory financial.
This definition is of fundamental importance in asset pricing. On the other hand, the creation of assets is done through investment. 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. An introduction to risk and return concepts and evidence by franco modigliani and. Back at last offers what is at once a welcoming introduction to and a comprehensive overview of. Portfolio theory deals with the measurement of risk, and the.
These notes are based on asset pricing and portfolio choice theory by kerry back. Fin9014 asset pricing theory and empirical methods in. For valuation, the focus throughout is on stochastic discount factors and their properties. Asset pricing and portfolio choice theory oxford scholarship. Pdfasset pricing and portfolio choice theory free ebooks. Asset pricing and portfolio choice theory kerry back oxford. 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.
The capital asset pricing model and the arbitrage pricing theory. Asset pricing i pricing models and derivatives course description. Asset pricing and portfolio choice theory this book covers the classical results on singleperiod, discretetime, and continuoustime models of portfolio choice and asset pricing. Back at last offers what is at once a welcoming introduction to and a comprehensive overview of asset pricing. In asset pricing and portfolio choice theory, kerry e. Get asset pricing and portfolio choice theory book by oxford university press usa pdf file for free from our online library. The first two parts of the book explain portfolio choice and asset pricing theory in singleperiod, discretetime, and continuoustime models. The numerous challenging exercises are yet another big strength. Errata asset pricing and portfolio choice theory second. Topics covered include i noarbitrage, arrowdebreu prices, and equivalent. Good asset pricing empirical work always requires a thorough understanding of asset pricing theories.
These models are born out of modern portfolio theory, with the capital asset pricing model capm as the prototypical result. The set of asset proportions at any time defines a portfolio. It contains portfolio choice theory, equilibrium and derivative pricing. Portfolio choice and asset pricing in a status conscious economy. Introduction to asset pricing theory the theory of asset pricing is concerned with explaining and determining prices of. Taylor series approximations to expected utility and optimal portfolio choice, with georgios. Asset pricing and portfolio choice theory financial management association survey and synthesis 97801953806.
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. 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. Leroy and jan werner l, 2001, principles of financial. Kerry backs textbook on asset pricing elegantly covers two phd. Pdf modern portfolio theory, capital market theory, and. Back offers a concise yet comprehensive introduction to and overview. Evidence from the portfolio framework, mpra paper 57726, university library of munich. 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. Kerry back asset pricing solutions manual economics job. An overview of asset pricing models university of bath. 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.
One objective of portfolio theory is the identification of the. Everyday low prices and free delivery on eligible orders. His research has been published in academic journals such as journal of finance, journal of. Equilibrium asset pricing and portfolio choice under. His research interests cover empirical asset pricing and the economics of the asset pricing industry. This book covers the classical results on singleperiod, discretetime, and continuoustime models of portfolio choice and asset pricing.
The first two parts of the book explain portfolio choice and asset pricing theory in single. The aim of this course is to introduce students to the modern theory of asset pricing, portfolio theory and derivatives pricing. This book is intended as a textbook for asset pricing theory courses at the ph. The asset prices we discuss would include prices of bonds and stocks, interest rates, exchange rates, and derivatives of all these underlying. Here asset prices jointly satisfy the requirement that the quantities of each asset supplied and the quantities demanded must be equal at that price so called market clearing. Once such a normative relationship between risk and return is obtained, it has an obvious. Pdf download asset pricing and portfolio choice theory. F asset pricing and portfolio choice theory for kindle. Leroy and jan werner l, 2001, principles of financial economics, cambridge university press optional.
Monetary economics this article compares two leading models of asset pricing. Financial economics asset pricing and portfolio selection lecture 2. 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. Kerry back 2010, asset pricing and portfolio choice theory, oxford university press stephen f. It covers the classical results on singleperiod, discretetime, and continuoustime models. 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. Currently, he teaches introductory and advanced asset pricing theory to phd students in the jones school and in the department of economics. Asset pricing and portfolio choice theory second edition.
Financial economics asset pricing and portfolio selection. The tradeoff between familiarity and diversification, with phelim boyle, raman uppal and tan wang. 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. Asset pricing and portfolio choice theory kerry back.
In this section, we will consider an exception to that rule when we will look at assets with two specific characteristics. 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. Sep 10, 2010 kerry back has created a masterful introduction to asset pricing and 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. The key message of the model is that the expected excess return on a risky. 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.
Also, there shouldnt be a tilde on c 1, because it is not random. 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. For one, asset pricing models presume a theory of portfolio choice. A key insight of modern portfolio theory is the merits of diversi cation. Errata asset pricing and portfolio choice theory second edition kerry back june 5, 2019. It is written at an introductory level but includes detailed proofs and calculations as section appendices. Pdf asset pricing and portfolio choice theory semantic scholar. I argue that while the apt is compatible with the data available for testing theories of asset pricing, the capm is not.
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. The elements of the course that focus on derivative pricing are based on. Asset pricing and portfolio choice theory by kerry back. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for. Asset pricing and portfolio choice theory ebook, 2010 worldcat. Intended as a textbook for asset pricing theory courses at the ph. Asset pricing and portfolio choice theory financial.
Jan 01, 2010 in asset pricing and portfolio choice theory, kerry e. K back in asset pricing and portfolio choice theory, kerry e. Back at last offers what is at once a welcoming introduction to and a comprehensive. In addition, less wealthy investors underdiversify more than wealthier. 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. An overview of asset pricing models andreas krause university of bath school of management phone. It also treats various proposed explanations for the equity premium and riskfree rate. Asset pricing and portfolio choice theory edition 1 by. Pareto optimality implies a representative investor 163 7. Furthermore, we exhibit the practical relevance and assumptions of these models. The stochastic discount factor sdf is a concept in financial economics and mathematical finance.
Portfolios from sorts by neil a chriss, robert almgren ssrn. I have both and i have studied backs version quite extensively. 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. I should also disclose that kerry back wrote my phd application letter and i took the ap course with him at rice. Portfolio theory and asset pricing elton, edwin j on.