1、Behavioral Finance Term: Spring 2005, Summer 2005 Prof.: Jeffrey Wurgler (jwurglerstern.nyu.edu) Office: Tisch 9-05 Office hours: (1) Tuesday 3:30-4pm and longer as needed (2) Tuesday 9-9:30pm and longer as needed (3) Email for special appt. Admin. asst.: Norma Rodruiguez (cubicle outside of Tisch 9
2、-12) Grader: Prachi Deuskar (pdeuskarstern.nyu.edu) Course page: Documents are maintained on the Blackboard system (http:/sternclasses.nyu.edu/ ) Class times: B40.3329.30: Tuesday, 6-9pm, Kmec 4-60 C15.0029.01: Tuesday and Thursday, 2-3:15pm, Tisch LC-12 B40.3329.01: (Summer module 1) Tuesday and Th
3、ursday, 6-9pm, location n/a yet Final exam: B40.3329.30: Tuesday, May 3, 6pm C15.0029.01: Thursday, May 10, 2pm B40.3329.01: (Summer module 1): Thursday, June 23, 6pm Over the past several decades, the field of finance has developed a successful paradigm based on the notions that investors and manag
4、ers were generally rational and the prices of securities were generally “efficient.” In recent years, however, anecdotal evidence as well as theoretical and empirical research has shown this paradigm to be insufficient to describe various features of actual financial markets. In this course we exami
5、ne how the insights of behavioral finance complements the traditional paradigm and sheds light on the behavior of asset prices, corporate finance, and various Wall Street institutions and practices. The course is taught through lectures, case studies, our own discussions, and perhaps a guest speaker
6、 if appropriate and convenient. Grading is as follows: 5% Class participation 55% Homeworks (3) and case write-up (1) 40% Final exam For the short homeworks and case write-up, teams of up to three (but no more) students may hand in a joint solution. These assignments are due at the beginning of clas
7、s (see schedule next page), with a 1/3 letter grade penalty for each day late (i.e., max grade goes from A to A- with first day late, etc.). I am required to use the standard Stern grading curve to determine grades in each section. Grading for PhD students is handled separately. PhD grades are based
8、 5% on class participation and 95% on four “referee reports” critical, 4-5 page, in-depth reviews of selected papers. They are due on the same four days as problem sets and case write-ups due (see schedule next page). Well decide on the papers to be “refereed” as the class progresses. Class schedule
9、LangoneMBAB40.3329.30 T 6-9pmKMEC4-60Undergraduate C15.0029.01 TR2-3:15pmTischLC-12 LangoneMBAB40.3329.01 TR6-9pm(locationn/ayet) 2/8 1/18,1/20,1/25,1/27,2/1 5/17 I.Non-behavioralfinance:Introduction;Whywecare: Therolesofsecuritiespricesintheeconomy;Efficient marketshypothesis(EMH):Definitions; EMHi
10、nsupplyanddemandframework;Theoreticalargumentsforflataggregate demandcurve;Equilibriumexpectedreturnsmodels;Keymethodologies;Pro-EMHevidence2/15,2/22*(1sthalf) 2/3,2/8,2/10,2/15*5/19,5/24*(1sthalf) II.Somemotivatingevidence: Returnpredictabilityinthestockmarket; Datamining; Jointhypothesisproblem; P
11、redictabilityinbonds, forex,futures,real estate, options,sportsbetting. 2/22(2ndhalf),3/1,3/8* 2/17,2/22,2/24,3/1,3/3,3/8,3/10*5/24(2ndhalf),5/26,5/31* III.Demand byarbitrageurs:Definitionofarbitrageur;Long-shorttrades; Riskvs.Horizon;Transactioncosts andshort-sellingcosts;Fundamentalrisk;Noise-trad
12、errisk;Professionalarbitrage;Destabilizinginformedtrading(positivefeedback, predation);Case: StrategicCapitalManagement,LLC.3/22,3/29,4/5* 3/22,3/24,3/29,3/31,4/5,4/7* 6/2,6/7,6/9* IV:Demand byaverageinvestors:Definitionofaverageinvestor; Beliefbiases; Limitedattentionandcategorization;Nontraditiona
13、l preferencesprospecttheoryandlossaversion;Socialinteraction,bubbles,andsystematicinvestorsentiment4/12,4/19,4/26*(1sthalf)4/12,4/14,4/19,4/21,4/26* 6/14,6/16,6/21*(1sthalf)V.Supplybyfirms and managerialdecisions:Supplyofsecuritiesandfirminvestmentcharacteristics(market timing,catering)byrationalfir
14、ms;Associatedinstitutions;Relativehorizonsandincentives;Regulatinginefficientmarkets;Biasedmanagers4/26(2ndhalf) 4/28 6/21(2ndhalf) Review5/3 5/10 6/23 Exam* =Homeworkdue* =Casewrite-up dueReading list One of the truly liberating features of this field is the fact that there is not yet any full-blow
15、n textbook. The closest thing to a textbook is Inefficient markets (Oxford UP) by Andrei Shleifer, and I ask you to buy this book at the bookstore ($25 in paperback). In the absence of a suitable textbook, we will be reading straight from the original research papers. In many cases these papers are
16、less than a few years old. Required readings are marked with a (*) below. This reading list may seem intimidating at first glance, but fear not! The most important formal models and statistical techniques will be covered in class and reviewed in problem sets. When sitting down to read a paper on you
17、r own, try to take away the key intuition and results of the paper. Dont dwell on details. Make a special effort at the required readings, which are generally less technical. At least skim the supplemental readings. I will discuss virtually all of the articles below in class, at least briefly. I. No
18、n-behavioral finance In the beginning (i.e. the 1960s), there was the efficient markets hypothesis. (*) Fama, Eugene, Lawrence Fisher, Michael C. Jensen, and Richard R. Roll, (1969), The adjustment of stock price to new information, International Economic Review, 10: 1-21. Jensen, Michael C. (1968).
19、 The performance of mutual funds in the period 1945-1964. Journal of Finance, 23: 389-416. Early authors found strong empirical support for the efficient markets hypothesis. Fama, Eugene (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance, 25:383-417. II. Som
20、e motivating evidence Over the past few decades, a number of curious patterns in asset returns have been discovered. Such patterns include the market reaction to news and non-news. Cutler, David, James Poterba, and Lawrence Summers (1989). What Moves Stock Prices? Journal of Portfolio Management, 15
21、(3); 4-12. Huberman, Gur, and Tomer Regev, 2001, Contagious Speculation and a Cure for Cancer: A non-event that Made Stock Prices Soar, Journal of Finance, 56(1), p. 387-396 Shiller, R.J. (1981). Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends? American Economic Revi
22、ew, 71:421-36. And patterns of return predictability in stocks. Lakonishok, Josef, and Seymour Smidt, 1988, Are seasonal anomalies real? A ninety-year perspective, Review of Financial Studies 1 (4): p. 403-425. (*) Bernard, Victor (1992). Stock Price Reactions to Earnings Announcements. In: Thaler,
23、R. (Ed.), Advances in Behavioral Finance. New York: Russell Sage Foundation. Fama, Eugene, and Kenneth R. French (1992). The cross-section of expected stock returns. Journal of Finance 47: 427-465. Fama, E. F. and K. R. French, 1993, Common risk factors in the returns on stocks and bonds, Journal of
24、 Financial Economics 33, 3-56. Daniel, Kent, and Sheridan Titman, 1997, Evidence on the characteristics of cross-sectional variation in stock returns, Journal of Finance 52: 1-33. (*) De Bondt, Werner F.M., and Thaler, Richard (1985). Does the Stock Market Overreact? Journal of Finance, 40:793-805.
25、Jegadeesh, Narasimhan, and Sheridan Titman, 1993, Returns to buying winners and selling losers: Implications for stock market efficiency, Journal of Finance 48: 65-91. Lakonishok, J., Shleifer, A., and Vishny, R. (1994). Contrarian investment, extrapolation, and risk. Journal of Finance, 49:1541-78.
26、 La Porta, Rafael, Lakonishok, Josef, Shleifer, Andrei, and Vishny, Robert (1997). Good News for Value Stocks: Further Evidence on Market Efficiency. Journal of Finance, 52:859-74. Lo, Andrew, and A. Craig MacKinlay (1990), When are contrarian profits due to stock market overreaction?, Review of Fin
27、ancial Studies 3: 175-206. Fama, Eugene, and Kenneth R. French, 1989, Business conditions and expected returns on stocks and bonds, Journal of Financial Economics 25: 23-49. There are also curious predictability patterns in bonds, options, forex, futures, real estate, and sports bets. (same paper as
28、 above) Fama, Eugene, and Kenneth R. French, 1989, Business conditions and expected returns on stocks and bonds, Journal of Financial Economics 25: 23-49. Stein, Jeremy, 1989, Overreactions in the options market, Journal of Finance 44, 1011-1022. (*) Froot, Kenneth A., and Richard H. Thaler, 1990, A
29、nomalies: Foreign Exchange, Journal of Economic Perspectives 4:3 (Summer 1990), 179-192. Roll, R. (1984). Orange Juice and Weather. American Economic Review, 74:861-80. Bodoukh, Jacob, Matthew Richardson, YuQing Shen, and Robert Whitelaw, 2002, Do Asset Prices Reflect Fundamentals?: Freshly Squeezed
30、 Evidence from the FCOJ Market, NYU working paper. Case, Karl E., and Robert J. Shiller, 1989, The efficiency of the market for single-family homes, American Economic Review 79: 125-137. Liao, Hsien-hsing, and Jianping Mei, 1998, Risk characteristics of real estate related securities: An extension o
31、f Liu and Mei (1992), Journal of Real Estate Research 16:279-290. Hausch, Donald, and William Ziemba, 1995, Efficiency of sports and lottery betting markets, In: Handbooks in Operations Research and Management Science, vol. 9 (Elsevier). III. Demand by arbitrageurs Market prices reflect supply and d
32、emand. Aggregate demand can be usefully broken down into the demand of rational and/or highly sophisticated investors, which well call arbitrageurs, and the demand of typical human investors. (*) Shleifer, Andrei, Inefficient Markets (first chapter). (*) Wurgler, Jeffrey, and Zhuravskaya, Ekaterina
33、(2002). Does Arbitrage Flatten Demand Curves For Stocks? Journal of Business 75: 583-608. There are a range of costs and risks that deter would-be arbitrageurs. DAvolio, Gene, 2002. The market for borrowing stock. Journal of Financial Economics 66: 271-306. Miller, Edward M., 1977, Risk, uncertainty
34、, and divergence of opinion, Journal of Finance 32: 1151-1168. Chen, Joseph, Harrison Hong, and Jeremy C. Stein (2002), Breadth of Ownership and Stock Returns, Journal of Financial Economics 66:171-205. Jones, Charles M., and Lamont, Owen A., 2002. Short sale constraints and stock returns. Journal o
35、f Financial Economics 66: 207-239. Lamont, Owen A., and Richard Thaler (2003). Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs, Journal of Political Economy 111: 227-268. Mitchell, Mark, Todd Pulvino, and Erik Stafford (2002), Limited Arbitrage in Equity Markets, Journal of Fina
36、nce 57, 551-584. Ofek, Eli, Matthew Richardson, and Robert Whitelaw, 2003, Limited arbitrage and short sales restrictions: Evidence from the options markets, Journal of Financial Economics forthcoming. Shleifer, Andrei, Inefficient Markets (ch. 4 on delegated arbitrage; based on Shleifer, Andrei, an
37、d Robert Vishny, 1997, The limits of arbitrage, Journal of Finance 52: 35-55.) (*) Shleifer, Andrei, Inefficient Markets (ch. 2 on noise trader risk; based on DeLong, Brad, Andrei Shleifer, Lawrence Summers, and Robert Waldmann, 1990, Noise trader risk in financial markets, Journal of Political Econ
38、omy 98: 703-738). (*) Shleifer, Andrei, Inefficient Markets (ch. 3 on closed-end funds; based on Lee, Charles M., Andrei Shleifer, and Richard Thaler, 1991, Investor sentiment and the closed-end fund puzzle, Journal of Finance 46: 75-110). (*) Froot, Kenneth A., and Dabora, Emile (1999). How Are Sto
39、ck Prices Affected by Location of Trade? Journal of Financial Economics, 53(2):189-216. In certain circumstances, the smart-money trade may actually reduce market efficiency. Shleifer, Andrei, Inefficient Markets (ch. 6 on positive feedback trading; based on DeLong, Brad, Andrei Shleifer, Lawrence S
40、ummers, and Robert Waldmann, 1990, Journal of Finance 45: 375-395). Brunnermeier, Markus K., and Lasse Heje Pedersen, 2002. Predatory trading. NYU working paper. Brunnermeier, Markus K., and Stefan Nagel, 2002. Hedge funds and the technology bubble, Journal of Finance forthcoming. This case reviews
41、the limits of arbitrage. (*) Mitchell, Mark, Todd Pulvino, and Erik Stafford, 2002, Strategic capital management, LLC series, Harvard Business School case # 5-202-028 IV. Demand by average investors Typical human investors hold divergent opinions about individual assets, but on any given day opinion
42、s tend to move in the same direction. Bagwell, Laurie Simon. 1992. Dutch Auction Repurchases: An Analysis of Shareholder Heterogeneity, Journal of Finance. Barber, Brad, Terrance Odean, and Ning Zhu, 2003, Systematic noise, UC Davis working paper. Systematic investor sentiment ultimately derives fro
43、m common cognitive limitations and systematic biases in investors perceptions. Tversky, Amos and Daniel Kahneman (1974). Judgement Under Uncertainty: Heuristics and Biases. Science, 185:1124-31. Kahneman, Daniel, 2003, Maps of bounded rationality: Psychology for behavioral economics. American Econom
44、ic Review 93: 1449-1475. (*) Kahneman, Daniel, and Riepe, Mark (1998). Aspects of Investor Psychology. Journal of Portfolio Management, 24:52-65. (*) Shleifer, Andrei, Inefficient Markets (ch. 5 on a model of investor sentiment; based on Barberis, Nick, Andrei Shleifer, and Robert Vishny, 1998, A mo
45、del of investor sentiment, Journal of Financial Economics 49: 307-343). Poteshman, Allen, 2001, Underreaction, Overreaction, and Increasing Misreaction to Information in the Options Market, Journal of Finance 56 (3), 851-876. Daniel, Kent, Hirshleifer, David, and Subrahmanyam, Avanidhar (1998). Inve
46、stor Psychology and Security Market Under- and Overreactions. Journal of Finance, 53:1839-85. Hong, Harrison, and Jeremy C. Stein, 1999, A unified theory of underreaction, momentum trading, and overreaction in asset markets, Journal of Finance 54, 2143-2184. Barberis, Nicholas, Shleifer, Andrei, 200
47、3. Style investing. Journal of Financial Economics, 68 161-199. Barberis, Nicholas, Shleifer, Andrei, and Jeffrey Wurgler. (2002) Comovement, Journal of Financial Economics forthcoming. French, Kenneth R., and James M. Poterba, 1991, Investor diversification and international equity markets, America
48、n Economic Review 81: 222-226. Huberman, Gur, 2001, Familiarity Breeds Investment, Review of Financial Studies 14(3): 659-680. Klibanoff, Peter, Owen Lamont, and Thierry A. Wizman, 1998, Investor reaction to salient news in closed-end country funds, Journal of Finance 53: 673-699. Shefrin, Hersh, an
49、d Meir Statman, 1985, The disposition to sell winners too early and ride losers too long: Theory and evidence, Journal of Finance 40(3): 777-790. Odean, Terrance (1998). Are Investors Reluctant to Realize Their Losses?. Journal of Finance, 53:1775-98. Shefrin, Hersh, and Meir Statman, 1984, Explaining investor preference for cash dividends, Journal of Financial Economics 13: 253-282. These individual-level biases are consolidated and amplified by social interaction. Hong, Harrison, Jeffrey D. Kubik, and Jeremy C. Stein, 2003, Social Interaction and Stock-market participation
