Beruflich Dokumente
Kultur Dokumente
Timing:
The course is expected to be taught in Winter-Spring of 2003 This is reading course, so no
precise schedule will exist...
Course requirements:
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
Course Director
Course Secretary
Marita Rosing
Department of Finance, Stockholm School of Economics
Room 665, Tel: 736 9140, e-mail Marita Rosing
General references:
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.
Course outline
INTRODUCTION
* 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.
***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
April 25th, 13:15-15:00, room 350
*** 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
Myopia and Loss Aversion on Risk-Taking: An Experimental Test, Quarterly Journal of Economics
112, 647-661.
Session 5: Evidence of Investor Behavior
April 30th, 10:15-12:00, room 349
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), Nave 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)
Campbell, John Y. and Robert J. Shiller (1998), "Valuation Ratios and the Long-Run Stock Market
Outlook", Journal of Portfolio Management. vol 24(2), 11-26.
***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,
**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, 375395
***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.
***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.
* 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, 197216.
* 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