RESEARCH TOPICS IN FINANCE SPRING 2004
Professor: Massimo Massa
The aim of this course is to introduce students to the some of the most recent advances in finance and especially Behavioral Finance. The course is structured in a general methodological approach to the topics and in-depth analysis of applications to asset pricing and corporate finance. The course is a research-oriented course and is meant to provide student interested in working on behavioral topics with the proper tools.
Secretary: Margaret Hardouin (4214)
Course requirements:
· Students are expected to have carefully read the required articles and be ready to discuss and present them.
· Each student should participate presentations of the articles.
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.
Thaler, Richard (ed.), 1992, Advances in Behavioral Finance, Russell Sage Foundation.
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.
Session 1: Limits to Arbitrage
DeLong, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert Waldmann, Noise Trader Risk in Financial Markets, Journal of Political Economy 98, 703-738
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.
Stein, Jeremy ,1996, Rational Capital Budgeting in an Irrational World, Journal of Business 69, 429-55.
Baker, Malcolm and Jeffrey Wurgler, 2002, Market Timing and Capital Structure, Journal of Finance,
Baker, Malcolm, Stein, Jeremy and Jeffrey Wurgler, 2002, When does the market matter? Stock prices and the investment of equity-dependent firms. Quarterly Journal of Economics
Session 2: Evidence of Limited Arbitrage and Styles
Baker, Malcolm, and Savasoglu, Serkan, 2002, Limited Arbitrage in Mergers and Acquisitions,forthcoming, Journal of Financial Economics, Vol. 64,1,.
Mitchell, Mark, Todd Pulvino, and Erik Stafford, 2002, Limited Arbitrage in Equity Markets, Journal of Finance, Vol 57,2,.
Mitchell, Mark, Todd Pulvino, 2003, Characteristics of risk and return in risk arbitrage, Journal of Finance
Mitchell, Mark, Todd Pulvino, and Erik Stafford, 2004, Price pressure around mergers, Journal of Finance
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.
Pontiff, Jeff ,1996, Costly Arbitrage: Evidence from Closed-end funds, Quarterly Journal of Economics 111, 1135-52.
Wurgler, Jeffrey, and Ekatherina Zhuravaskya, 2002, Does Arbitrage Flatten Demand Curves for Stocks, forthcoming, Journal of Business.
Rashes, Michael, 2001, Massively Confused Investors Making Conspicuously Ignorant Choices MCI-MCIC, Journal of Finance, Vol 56,5, 1911-1927.
R. Mendenhall, ,2003, Arbitrage risk and post-earnings announcements drift, Journal of Business
A.Ashiq, H.Lee-Seok and M.Trombely, ,2003, Arbitrage risk and the book-to-market anomaly, Journal of Financial economics
M.Mitchell and T.C.Pulvino, ,2003, Characteristics of risk and return in risk arbitrage, Journal of Finance
J.Hsieh and R.Walkling, ,2003, Determinants and implications of arbitrage holdings in acquisitions, Mimeo.
E.Fich and I.Stefanescu ,2003, Expanding the limits of merger arbitrage, Mimeo.
G.Gemmil and D.Thomas, 2002, Noise trading, costly arbitrage and asset prices: evidence from closed-end mutual funds. Mimeo
Kim, Lee, Morck, ,2004, Heterogeneous Investors and their Changing Demand and Supply Schedules for Individual Common Stocks, Mimeo.
Lamont, Owen, and Richard Thaler ,2000, Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs, Working Paper, University of Chicago, forthcoming Journal of Political Economy.
Lamont, Owen ,2000, Guilty as Charged: Violations of the Law of One Price in Financial Markets, Working Paper, University of Chicago.
M. Brunnermeir and S Nagel, 2003, Arbitrage at its Limits: Hedge Funds and the Technology Bubble. Mimeo.
Dechow, Hutton, Meulbroek and Sloan, 2000, Short-sellers, fundamental analysis and stock returns, Journal of Financial Economics
Session 3: Market timing.
Baker, Malcolm and Jeffrey Wurgler, 2000, The Equity Share in New Issues and Aggregate Stock Returns, Journal of Finance, Vol. 55,5, 2219-2257.
AydoganAlti, ,2004, How Persistent is the Impact of Market Timing on Capital Structure?Mimeo
I. Welch, 2003, Columbus' Egg: The Real Determinant of Capital Structure, Mimeo
Blanchard, Olivier, Changyong Rhee, and Lawrence Summers ,1993, The Stock Market, Profit, and Investment, Quarterly Journal of Economics.
Session 4: Overconfidence and sentiment
- General
Odean, ,1998, Volume, volatility, Price, and Profit When All Traders Are Above Average, Journal of Finance
Gervais and Odean, ,2000, Learning to be overconfident, Mimeo.
M. Grinblatt and B. Han ,2003, The Disposition Effect and Momentum, Mimeo
Theo and O'Connel, Prospect Theory and Institutional Investors, Mimeo
Daniel, Hirshleifer and Subrahmanyam, ,1997, A theory of overconfidence, self-attribution and security market under- and over-reactions. Mimeo.
Daniel, Kent, David Hirshleifer, and Avanidhar Subrahmanyam ,1998, Investor Psychology and Security Market Under- and Overreactions, Journal of Finance 53, 1839-1885
1887-1933.
R. Cohen, P. Gompers, and T.O. Vuolteenaho, 2001, Who Underreacts to Cash-Flow News?Evidence from Trading Between Individuals and Institutions, Mimeo.
W. Xiong, 2001, Convergence trading with wealth effects: an amplification mechanism in financial markets, Journal of Financial Economics.
W. Xing, 2001, Contagion as a wealth effect, Journal of Finance, 2001
- Empirical
Barber and Odean, ,2000, Trading is hazardous to your health: the common stock investment performance of individual investors, Mimeo.
Odean, Terrance ,1998, Do Investors Trade Too Much? American Economic Review 89, 1279-1298.
Odean, Terrance ,1998, Are Investors Reluctant to Realize their Losses, Journal of Finance, 53, 1775-1798.
Barber, Brad, and Terrance Odean ,2001, Boys will be Boys: Gender, Overconfidence, and Common Stock Investment, forthcoming Quarterly Journal of Economics.
Barber, Brad, and Terrance Odean ,2000, Online Investors: Do the Slow Die First?, working paper, UC-Davis.
Heath, Chip, Steven Huddart and Mark Lang, Psychological Factors and Stock Option Exercises, Quarterly Journal of Economics 114, 601-627
M. Baker and J. Wurgler, ,2003, Investor Sentiment and the Cross-Section of Stock Return, Mimeo.
- Corporate
P. Bolton, J. Scheinkman and W. Xiong, ,2003, Executive Compensation and Short-termist Behavior in Speculative Markets, Mimeo
P. Mei, J. Scheinkman and W. Xiong, ,2003, Speculative trading and stock prices: an analysis of Chinese A-B share premia
U. Malmendier and J. Tate, ,2004, CEO Overconfidence and corporate investment, Mimeo.
U. Malmendier and J. Tate, ,2004, Who makes acquisitions? CEO Overconfidence and the Market's Reaction, Mimeo.
- Corporate empirical
C. Polk and P. Sapienza, 2004, The Real Effects of Investor Sentiment. Mimeo
M.Bertrand and A. Schoar, 2002, Managing with Style: The Effect of Managers on Firm Policies, Mimeo
M.Baker and J.Wurgler, 2003, A Catering Theory of Dividends. Mimeo.
Session 5: Miscellaneous
- Learning and influences
H.Hong and J. Stein, ,2004, Simple Forecasts and Paradigm Shifts , Mimeo
J. Stein ,2004, Why are most funds open-end? Competition and the limits of arbitrage, Mimeo
Barberis, Shleifer and Vishny, ,1998, A model of investor sentiment, JFE 1998, 307-343.
L. Peng and W. Xiong, 2002, Time to digest and volatility dynamics, Mimeo
Grinblatt, Mark, and Matti Keloharju, Distance, Language, and Culture Bias: The Role of Investor Sophistication, working paper, Yale University.
Huberman, Gur, Familiarity Breeds Investment, working paper, Columbia University.
H.Hong, J.Kubik and J.Stein ,2003, Thy Neighbor's Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers, Mimeo
E. Glaeser, B. Sacerdote and J.A. Scheinkman, ,2003, The Social Multiplier, Mimeo.
S.Mullainathan, M.Bertrand and E.F.P. Luttmer, ,2003, Network Effects and Welfare Cultures, Mimeo
H.Hong, J.Kubik and J.Stein, ,2003, Social Interaction and Stock Market Participation Journal of Finance.
J.Reuter, and EricZitzewitz, 2004, Do Ads Influence Editors? Advertising and Bias in the Financial Media, Mimeo
RobinGreenwood, ,2004, Aggregate Corporate Liquidity and Stock Returns. Mimeo
- Agency
S. Gervais, A. Lynch and D. Musto, 2002, Fund Families as Delegated Monitors of Money Managers, Mimeo.
M. Bitler, T. Moskowitz, and A. Vissing-Jorgenson, 2004, Testing Agency Theory Using Entrepreneur Effort and Wealth. Journal of Finance.
M. Garmaise and T.Moskowitz, 2004, Confronting information asymmetries from real estate markets, RFS.