John H. Cochrane

Asset Pricing

This page is devoted to the book Asset Pricing , and the corresponding online class.

You can find lecture notes, class notes, readings, and problem sets at the "teaching" link to the left, especially 35150 Advanced Investments and 35904 Asset Pricing. Note, the answers to many problem sets are intentionally not posted. I may fix that some day but it's a big project. Notes related to macroeconomics and time series are on the "research" page.

Book

Asset pricing  Revised Edition. This link gives you a sample chapter. Click here to go to the Princeton University press website where you can order the book. (It is sometimes cheaper at Amazon.com or Barnes and Noble.com. In Chicago, it’s available at the seminary COOP bookstore.)

Additional Materials

Here are some additional materials useful for classes or self study. Many of these are essays or notes that I wrote since last revising the book.

Online Class

I created an online class "Asset Pricing" for Coursera. Alas, Coursera moved to a new platform, and could not move my class to the new platform, nor were they willing to keep the old platform alive. RIP. However, here are the videos and notes from the online class. I'm working on the problem sets, but that will take some time to make available. We (the Universtity of Chicago team and me) are working on finding another way to host the class so you can get graded and earn a certificate, but that will take even longer. The class is also hosted on Canvas, the University of Chicago course-management system, which you may be able to access. This section is new (September 2016), so please let me know about inevitable bugs and broken links.

Lecture Videos

The lecture videos are availble on two youtube channels,

The numbering in the videos is the same as the modules here.

Course Outline and Materials

You can see the detailed topic list in the youtube videos. If you can't get some of the papers, because you don't have JSTOR or scence direct, a little googling will usually turn it up. I can't list unofficial links here.

Module 1. Stochastic Calculus Introduction and Review.

This module is a review covering some basic concepts in stochastic calculus and time-series processes. Skim if you know this material well.

Module 2. Facts

This week is an overview of asset pricing facts and the basic theory that we will expand on throughout the course.

Module 3. Classic Issues

This week we'll cover some of the classic issues in finance.

Module 4. Discount Factor

This week we'll look at the discount factor in more detail.

Module 5. Mean-variance frontier and beta representations.

This week we'll cover the mean-variance frontier, beta representations, and the relationship between the discount factor, mean-variance and beta representations, and conditioning information.

Module 6. Factor Pricing Models

This week we'll cover the some of the common factor models used in asset pricing: the Capital Asset Pricing Model (CAPM), the Intertemporal Capital Asset Pricing Model (ICAPM), the Arbitrage Pricing Theory (APT), and how they relate to each other. 

Module 7. Econometrics and GMM.

This week we'll discuss the Generalized Method of Moments. How do you estimate alphas, betas, and lambdas? How do you evaluate if models are any good? GMM is a very flexible econometric framework for lots of problems, and we'll also explore that a bit

Module 8. Fama-French and Performance Evaluation

In this module, we'll discuss two of the most classic uses of factor pricing models. We start with the Fama-French three-factor model and the most common fourth factor added to it (momentum). Then we'll study the question whether mutual fund managers have "skill" revealed in "alpha." That question has us benchmark the managers against factor pricing models.

Module 9. The Econometrics of Classic Linear Models

This week we'll study the econometrics of linear factor pricing models such as Fama and French. This is really all a spacial case of GMM. I prefer to have you see the application before the theory, so, this is the econometric theory behind the Fama and French regressions that you've already run, along with a lot of conceptual review about what we're running and why. 

Module 10. Time-Series Predictability, Volatility, and Bubbles

In this module, we'll study time series predictability in detail. We looked at regressions of returns on dividend yields in Module 2, but now we'll look a lot deeper, including present values, identifying cashflow and discount rate shocks, and tying predictability to volatility and so-called bubbles.

Module 11. Equity Premium, Macroeconomics, and Asset Pricing

In this module, we'll study the connection between macroeconomics and asset pricing. This is, really, I think a highlight of financial economics. Just what are the fundamental, economic, risks that investors in asset markets seem so scared of, that they allow large risk premiums to survive? This is also an area that made huge progress, took a breath, and is back in full force. The experience of the 2008 financial crisis and recession says a lot about the kind of event people are afraid of! A more detailed list of topics:

Module 12. Option Pricing

In this module, we'll discuss option pricing, the Black-Scholes option-pricing formula, and empirical option pricing. Of course I relate option and arbitrage pricing to p=E(mx), rather than treat it as a separate idea.

Module 13. Bonds

In this module, we'll discuss bonds and models of the term structure of interest rates.

Module 14. Portfolio Theory

In this module, we'll discuss portfolio theory in more detail.