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15.433

Financial Markets

3-0-6 units · Graduate

Provides students with a solid understanding of key financial markets and the empirical skills and tools used to support decision making. Employs an in-depth, empirically-driven exploration of markets, including equity, fixed income, and derivatives. Students apply real-world financial data to test and understand financial models, focusing on key risk factors and risk management concerns in these markets, along with the quantitative tools used to analyze risk. Discusses major institutions and players involved in each market, the evolution of the markets, and issues such as liquidity. Meets with 15.4331 when offered concurrently. Expectations and evaluation criteria differ for students taking graduate version; consult syllabus or instructor for specific details.

Spring 2003 · Investments

Topics

  • Introduction
  • Securities, Random Walk on Wall Street
  • Portfolio Theory, Part 1: Setting Up the Problem
  • Portfolio Theory, Part 2: Skewness Preference and Dynamic Rebalancing
  • Portfolio Theory, Part 3: Multiple Risky Assets
  • The CAPM and APT, Part 1: Theory
  • The CAPM and APT, Part 2: Applications and Tests
  • The Equity Market, Part 1: Patterns in the Cross-Section of Stock
  • The Equity Market, Part 2: More Patterns in the Cross-Section of Stock Returns
  • Equity Options, Part 1: Introduction
  • Equity Options, Part 2: Empirical Evidence, Volatility
  • The Fixed Income Market, Part 1: Introduction
  • The Fixed Income Market, Part 2: The Yield Curve
  • Futures, Swaps, Caps/Floors, Swaptions, and Other Derivatives
  • The Credit Market, Part 1: Default Risk, Credit Spreads and Ratings Transitions
  • The Credit Market, Part 2: Credit Derivatives
  • Market Efficiency
  • Security Analysis and Stock Selections
  • Active Portfolio Management
  • Hedge Funds and Proprietary Trading
  • Risk Management
  • Commodity
  • Behavioral Finance
  • Summary and Review
  • Repetition

Readings

  • Altman, Edward I., John B. Caouette and Paul Narayanan. Credit-Risk Measurement and Management: The Ironic Challenge in the Next Decade . Financial Analysts Journal (Jan-Feb 1998): 7-11.
    Listed reading
  • Bernstein, Peter L. Risk as History of Ideas . Financial Analysts Journal (Jan-Feb 1995): 7-11.
    Listed reading
  • Black, Fischer. Estimating Expected Return . Financial Analysts Journal (Jan- Feb 1995): 168-171.
    Listed reading
  • Chow, George, and Mark Kritzman. The Journal of Portfolio Management (Winter 2001): 56-60.
    Listed reading
  • Cochrane, J. New Facts in Finance . Economic Perspectives 23, 3 (Third Quarter 1999). Federal Reserve Bank of Chicago.
    Listed reading
  • Duffie, Darrell, and Nicolae Grleanu. Risk and Valuation of Collateralized Debt Obligations . Financial Analysts Journal (Jan-Feb 2001): 41-59.
    Listed reading
  • Daniel, Kent, and Sheridan Titman. Market Efficiency in an Irrational World . Financial Analysts Journal (Nov-Dec 1999): 28-40.
    Listed reading
  • Elton, Edwin J., and Martin J. Gruber. The Rationality of Asset Allocation Recommendations . Journal of Financial and Quantitative Analysis 35, 1 (March 2000): 27-41.
    Listed reading
  • Fama, Eugene F. Market Efficiency, Long-Term Returns, and Behavioral Finance . Journal of Financial Economics 49 (1998): 283-306.
    Listed reading
  • -—–. Random Walks in Stock Market Prices . Financial Analysts Journal (Jan-Feb 1995): 75-80.
    Listed reading
  • Fama, Eugene F., and Kenneth R. French. The Cross-Section of Expected Stock Returns . The Journal of Finance 47, 2 (June 1992): 427-465.
    Listed reading
  • Jagannathan, R., and E. McGrattan. The CAPM Debate . Federal Reserve Bank of Minneapolis Quarterly Review 19 (1995): 2-17.
    Listed reading
  • Kritzman, Mark. “What Practitioners Need to Know … About Event Studies.” Financial Analysts Journal (Nov-Dec 1994): 17-20.
    Listed reading
  • -—–. “What Practitioners Need to Know … About Higher Moments.” Financial Analysts Journal (Sept-Oct 1994): 10-17.
    Listed reading
  • -—–. “What Practitioners Need to Know … About Return and Risk.” Financial Analysts Journal (May-Jun 1993): 14-17.
    Listed reading
  • -—–. “What Practitioners Need to Know … About Utility.” Financial Analysts Journal (May-Jun 1992): 17-20.
    Listed reading
  • -—–. “What Practitioners Need to Know … About Time Diversification.” Financial Analysts Journal (Jan-Feb 1994): 14-18.
    Listed reading
  • -—–. “What Practitioners Need to Know … About Uncertainty.” Financial Analysts Journal (Mar-Apr 1991): 17-21.
    Listed reading
  • -—–. “What Practitioners Need to Know … About Regressions.” Financial Analysts Journal (May-Jun 1991): 12-15.
    Listed reading
  • -—–. “What Practitioners Need to Know … About Factor Methods.” Financial Analysts Journal (Jan-Feb 1993): 12-15.
    Listed reading
  • -—–. “What Practitioners Need to Know … About Estimating Volatility Part 1.” Financial Analysts Journal (Jul-Aug 1991): 22-24.
    Listed reading
  • -—–. “What Practitioners Need to Know … About Estimating Volatility Part 2.” Financial Analysts Journal (Sept-Oct 1991): 10-11.
    Listed reading
  • -—–. “What Practitioners Need to Know … About the Term Structure of Interest Rates.” Financial Analysts Journal (Jul-Aug 1993): 14-18.
    Listed reading
  • Kao, Duen-Li. Illiquid Securities: Pricing and Performance Measurement . Financial Analysts Journal (Mar-Apr 1993): 28-35.
    Listed reading
  • Merton, Robert C. The Financial System and Economic Performance . Journal of Financial Services Research 4 (1990): 263-300.
    Listed reading
  • Perrold, A. Long-Term Capital Management. L.P. (A-D), Boston: Harvard Business School, 1999.
    Listed reading
  • Roll, Richard, and Stephen A. Ross. The Arbitrage Pricing Theory Approach to Strategic Portfolio Planning . Financial Analysts Journal (Jan-Feb 1995): 122-131.
    Listed reading
  • Reyfman and Toft. Credit Derivatives - A Risk Management Tool for Non-Bank Corporations . (2001).
    Listed reading
  • Ross, Stephen. A Billion Dollars Just Isn’t, Risk . (May 1999): 64-66.
    Listed reading
  • Rubinstein, Mark. Rational Markets: Yes or No? The Affirmative Case . Financial Analysts Journal (May-Jun 2001): 15-29.
    Listed reading
  • Sharpe, William F. Risk, Market Sensitivity and Diversification . Financial Analysts Journal (Jan-Feb 1995): 84-88.
    Listed reading
  • Statman, Meir. Behavioral Finance: Past Battles and Future Engagements . Financial Analysts Journal (Nov-Dec 1999): 18-27.
    Listed reading
  • The Ins and Outs of Cash Flow . Business Week (2001).
    Listed reading
  • Thomas, Lee R. III. Active Management . The Journal of Portfolio Management (Winter 2000): 25-32.
    Listed reading
  • Waring, Barton, Duane Whitney, John Pirone and Charles Castille. Optimizing Manager Structure and Budgeting Manager Risk . The Journal of Portfolio Management (Spring 2000): 90-104.
    Listed reading

Prerequisites & course information

Subject meets with 15.4331 Prereq: 15.401 , 15.414 , or 15.415 G (Fall) 3-0-6 units

Sources