78173 - Asset Pricing

Course Unit Page

  • Teacher Martin Gonzalez Eiras

  • Credits 6

  • SSD SECS-P/11

  • Teaching Mode Traditional lectures

  • Language English

  • Campus of Bologna

  • Degree Programme Second cycle degree programme (LM) in Economics and Econometrics (cod. 5977)

Academic Year 2023/2024

Learning outcomes

The goal of the course is to introduce students to a sound knowledge of asset pricing using dynamic programming techniques. The pricing method is based on the intertemporal approach known as Consumption Capital Asset Pricing Model (Lucas, 1978), which represents a fundamental approach in financial economic theory on asset pricing. By the end of the course the student has acquired: - a good knowledge of fundamental notions of choice under uncertainty; - a good knowledge of basic tools for handling intertemporal maximization problems; - a good knowledge of the pricing technique known as Consumption Capital Asset Pricing Model; - a good understanding of the economic determinants of price fluctuations on financial markets.

Course contents

1. Introduction to asset pricing

2. Mean-variance models, CAPM and factor models

3. General equilibrium consumption-based asset pricing

4. Incomplete markets and financial innovation

5. Heterogeneous beliefs

6. Market microstructure theory

7. Market microstructure empirics


Cochrane J., “Asset Pricing”, 2001, Princeton University Press

O’Hara M., “Market Microstructure Theory”, 1995, Blackwell Publishers

Huang C. y R. Litzenberger, “Foundations for Financial Economics”, 1988, Prentice Hall

Mayers D., "Nonmarketable Assets and Capital Market Equilibrium Under Uncertainty", 1972 in "Studies in the theory of capital markets

Lucas R., “Asset Prices in an Exchange Economy”, 1978, Econometrica 46, 1429-1445

Willen P., “New financial markets: who gains and who loses”, 2005, Economic Theory, 26, 141-166

Calvet L., Gonzalez-Eiras M., and P. Sodini, “Financial Innovation, Market Participation and Asset Prices”, 2004, Journal of Financial and Quantitative Analysis, 39(3), 431-459

Geanakoplos J., “The Leverage Cycle”, 2009, NBER Macroeconomics Annual, 1-65

Martin I. and D. Papadimitriou, “Sentiment and speculation in a market with heterogeneous beliefs”, forthcoming, American Economic Review

Glosten L. and P. Milgrom, “Bid, Ask, and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders”, 1985, Journal of Financial Economics 13, 71-100

Kyle A., “Continuous Auctions and Insider Trading”, 1985, Econometrica 53, 1315-1336

Kyle A., “ Informed Speculation with Imperfect Competition”, 1989, Review of Economic Studies 56, 317-355

Cipriani M. and A. Guarino, “Estimating a Structural Model of Herd Behavior in Financial Market”, 2014, American Economic Review, 104(1), 224-251

Kirilenko A., Kyle A., Samadi M. and T. Tuzun, “The Flash Crash: High-Frequency Trading in an Electronic Market”, 2017, Journal of Finance, 72(3), 967-998

Teaching methods

Lectures and recitations, complemented by supporting material.

Attendance of both lectures and recitations is strongly recommended.

Assessment methods

Your grade will be based on a written final exam. Students can reject a pass grade in the exam only once. 

The maximum possible score in the class is 30 cum laude, in case all answers are correct, complete and formally rigorous. The grade distribution is as follows:

<18 failed

18-23 sufficient

24-27 good

28-30 very good

30 e lode excellent

In case online exams will be envisaged by the University of Bologna for all students, the structure of the written exam is the same. The exam will be run through Teams or Zoom and Exams Online (EOL). Detailed instructions on how to manage and hand in the online exam are available on the course page on the VIRTUALE platform.

Teaching tools

Lectures and recitations.
Slides, exercises, and other material will be made available online on virtuale.

Office hours

See the website of Martin Gonzalez Eiras