Business 35150 Advanced Investments

University of Chicago Booth School of Business
John H. Cochrane Winter 2014

Welcome to the 35150 web page. You’ll find documents, programs, announcements and hints here. This is the main webpage, everything else links from here.

Last update: 3/26/2014 -- always click refresh to make sure you have the latest.

Lecture notes and overheads
Problem sets
Links, hints and extras

Outline and course policies and lots of other information Read before the first class.

IMPORTANT: Reading list and sylllabusLOOK HERE to see what you're supposed to read each week. There is a first week reading assignment.


Final review 3/10: There will be a grand final review session sunday 10-12 gleacher 204 for both sections.

Review update 2/3: Tuesday 4:45-5:45 C04 except March 18, C03. Starting 2/3 all reviews will be recorded, and link sent in email afterward. Send Alex an email if there is something you'd like covered in the review.

There is no course pack. All readings will be in pdfs on the Reading list and sylllabus.

TA: Alexander Zentefis

Campus: Thursday 1:30 PM-4:30 PM HCC03 Final Exam: Thursday 3:00 PM-6:00 PM
Downtown: Saturday 9:00 AM-12:00 PM GC204 Final Exam: Saturday 9:00 AM-12:00 PM

If you are registered for one section, you are welcome to attend the other so long as seats are available.

You must take the exam at the scheduled time. I won't give special exams earlier in the week. Don’t make plans that conflict with the final! As long as seats are available, you may take the final with the other section, but you have to ask first and seats may run out.

Each class typically starts with a 5 minute quiz on that week's reading. It is given only in the first 5 minutes (as a subtle incentive to show up on time.)


Q: Is there a first class assignment set?
A: Yes! Download it below. 

Q: Am I ready to take this class?
A: Read the prerequisite discussion in the outline and course policies. I do not enforce prerequisites s in the bidding system, so it’s up to you. 

Q: What computer stuff do I need?
A: We will run regressions with some pretty large data sets. It will be very hard to do the class in excel (I used to say impossible, but an excel genius proved me wrong. He did have to do a lot visual basic macros though). You need some sort of programming environmnent, the ability to work with matrices, and run simple regressions. Matlab is available on the PCs in both HPC and Gleacher if you want to try it out. If you know another programming or regression language, you should be able to use that.  R, Python, S+ ,Mathematica, c++, Gauss, Octave, and Julia, will all work, so if you’re comfortable with them they should work fine. R is getting more and more popular; if you learned that in a statistics class and like it, use it.  Matlab has a nice online tutorial here. Kevin Sheppard's Matlab Notes are excellent.

Q: I can’t register yet / will still be in the Bahamas on the first day of class etc. Can I be excused from the first problem set / hand it in late? A: No.

Q: I can’t register yet. What should I do?
A: There is always room in this class. Come to class, do the assignments and form a group as if you were registered. It’s 100% sure you will get a space!

Q: Can I audit / take the class pass fail / etc.?
A: You must check with me first for anything but a real registration and a real grade. Regular students must take the class for a grade. Alums may attend as one of their free extra classes, and may take a P/F. If you’re not doing the work you will have no idea what’s going on. You can only attend if you are doing the work, reading the readings, and I can call on you just as I do on everyone else. You may not be a “fly on the wall” in this class. I will call on everyone in class discussions.

Q: What about problem sets?
A: Problem sets for both sections are due Saturday 12:00. If you don't hand them in during the campus class, or at Gleacher, put them in the TA's HPC mailfolder by then. I'll post solutions Saturday afternoon. If you choose to work in a group, group members can be from either section. The sections are completely integrated and equiavalent.

Lecture notes/overheads

Week 1 overheads update 1/10, p.14-16 added
Week 1 detailed notes update 1/10 p. 46-48 added. I wrote up the lecture, including a bunch of extra material. This is an intense lecture, so I encourage you to read them ahead of time. The “week 1 appendix” here is optional material that I won’t get to in lecture and is not required for the course -- but irresistibly fun. Don’t expect such detailed notes for the rest of the class -- this took me weeks. 

Week 3 overheads 1/23 on Fama French multifactor explanations and dissecting anomalies. Update 1/24 p. 113 only change
Week 3 detailed notes. 1/23 on Fama French. Update 1/24 adds p. 131-133 only change

Week 4. New Anomalies. 2/1 Some notes on the big issues I talked about in class. The problem set answers are important guides to the papers.

Week 5 overheads/outline on asset pricing theory. 1/27
Week 5 detailed notes on asset pricing theory. 1/27

Optional: I do not plan to separately cover empirical methods this year. But if you want a "notes" treatment of this material to take with you in life, here it is.

Week 5b Overheads on empirical methods
Week 5b Notes on empirical methods

Week 6 notes on Mutual funds. 2/15

Week 7:
Hedge fund overheads 2/20
Hedge funds notes 2/20
Hedge funds questions and answers including problem set answers. 2/22
Short sales notes, questions, and answers 2/22

Week 8:
Notes on trading 2/27
Notes on financial crisis 2/27

Week 9 Notes on term structure 3/6 only p.522-566. The rest is extra FYI that I will not cover this year
Week 9 Overheads 2/28, 3/6 added the return graph, no other changes

Week 10 notes on portfolio theory
Week 10 Overheads

Course review A very condensed review of the high points of the class, useful study guide. 3/15 update 3/16 now points to the correct link.

Quiz answers. 3/16 Courtesy Alex, all the questions and answers from in class quizzes.

- - End of active lecture note links. You may look at what is below, from last year, but I have not yet updated it for this year --

Yoshio Nozawa FAQ on Factor models. (Optional, but good)

Week 3 Extras More theory, and the equity premium puzzle. This is material I will not cover this year, but if you're hungry for more it's available here.

Week 5 extra notes on continuous time (for sunday review) 2/13 update fixed some typos, and notes cover solving sde's FYI

My Slides with lots of pretty pictures Updated 2/20 with text to tell you what points I was making with the slides.
(Kedran Panageas slides from presentation at the IGM forum (lots of pictures to explain how securities work) )

Problem sets:  

Problem set 1 questions Due on first class.
Data for problem set 1
Matlab program regress_jc (you can use this to run regressions)
Matlab programs tinv.m and fcdf.m used  by regress_jc You shouldn’t need these – they are part of the statistics toolbox. But if you don’t have that toolbox, you’ll need these. (They are used to find probability values for t and f tests).

Problem set 1 answers 1/11
Matlab program for problem set 1
Olsgmm function called by my matlab program (put this in the same directory, matlab will find it as needed)

Problem set 2 questions 1/9
Problem set 2 answers 1/18. Update 1/23 2f R2 is 0.36 not 0.6
Matab program for problem set 2. 1/18 

Problem set 3 questions 1/17
Fama French Factors 1/14
Fama French Portfolios 1/14
Problem set 3 answers 1/25
Matlab program for CAPM part of problem set 3 ; program for time-series part of problem set 3
Tsregress matlab function called by the above

Problem set 4 questions 1/24. Update 1/26 includes reading questions
Problem set 4 answers 2/1
Matlab program for problem set 4 2/1

Problem set 5 questions 1/28
Size data for problem set 5 1/28
Beme data for problem set 5 1/28
Fama French Factors 1/28
Fama French Portfolios 1/28
These last two are the same as before but updated through 12/31/2013, and also historical data seem to have changed. Use the new versions for problem set 5, and the old versions for problem set 4 and earlier.
Problem set 5 answers 2/8
matlab program

Problem set 6 questions 2/7
Problem set 6 answers 2/15
Problem set 6 matlab program 2/15

Problem set 7 2/15
funds and factors data in matlab format
funds and factors data in excel format
Matlab program tsregress2. This extends the tsregress program to calculate GRS tests and other statistics of time series regression tests. Feel free to use it.
Problem set 7 answers
Matlab program

Problem set 8 2/22
Hedge fund data
Hedge fund factor data includes Fama French factors update 2/22
Optional: the testing program I used to make sure my main program (asness.m) works
Problem set 8 answers 2/28
Matlab program and function for the hedge fund question.2/28

Problem set 9 questions 2/28
Problem set 9 answers 3/7
Matlab program

Problem set 10 questions 3/7
Fama-Bliss yield curve data 3/7

Problem set 10 answers 3/16
matlab program
matlab program for Fama-French size and b/m question

Problem set 11 questions. 3/15 Not required to hand in. Worthwhile practice.
Problem set 11 answers 3/15

Final eview questions. 3/15 This contains the 2013 final with answers, a few previous years finals with answers, and a long list of review questions. Disclaimer: The course material changes from year to year, so there are some questions that you can't answer. This year's final will be based on this year's material. But these questions will give you some sense of my style, and many of them are current.

Final exam formula sheet. 3/19. The exact same formula sheet you will receive on the final. Don't bring this one with you, it's just so you know what will be there. If you see typos, let me know. If there is another formula you want, let me know. But wink, wink, I doubt you'll need any other formulas.

Final Exam Information

Final exam regrade policy: I will only change an exam grade if the question is almost completely right but I graded it almost completely wrong. I will not haggle about partial credit. Reason: I assign partial credit very carefully so that the same wrong answer gets the same number of points. Thus, I can't change your partial credit without changing everyone else's. (Yes, many people get the same wrong answer.) Fairness across exams is very important to me.

If you believe I have graded your exam incorrectly, submit the exam with an explanation in writing to my mailbox in HPC (US mail to GSB or livery from downtown works if you're not on campus). I reserve the right to regrade the entire exam.

I will happily correct arithmetic errors (adding up your grades) with no fuss.

2014 Exam and Answers 3/26. Here are the cumulative distributions of total score (max(70%*final + 30%* problem sets+quizzes, 100%*final)) and the final exam score. Overall, you did amazingly well, and I was severely constrained by the Booth required 3.33 distribution. I thought the exam was hard, but a median of 150/180 is just amazing. On an absolute scale, the Cs should really be B to B-, the B- should be B+, and B+ and up should all be As. I hope this is some consolation, and thanks for all your hard work this quarter.

35150 2014 scores

35150 winter 14 final scores


Links, hints, extras


The Econphd web page has links to a number of good matlab tutorials. (Scroll down to the bottom). The main EconPhD webpage has lots of interesting inforamation especially if you're considering a PhD or just interested in research.
Here's a great and very short Matlab Primer
Kipp Martin is now teaching a winter quarter course 36104 on excel and matlab

You can use R instead of Matlab. Here are some R to matlab hints from a 2010 student:

You can get almost all of the raw data I use through CRSP via WRDS. Call helpdesk to get the current username/password.


Ever feel like this?

hippo_takes_advanced_investmentsHippo takes advanced investments. (Art by Eric Fama Cochrane)