Financial Economics

Weekly Meetings

Tuesdays
6:00pm – 7:00pm
Harper 102

Lucas Cusimano

Lucas Cusimano

Cohort Leader

Xibai Wang

Xibai Wang

Cohort Leader

One question in financial economics is the difference in bond and equity returns. Theory and empirical measurements of risk aversion predict that the difference should be much larger than is actually observed. Our cohort will explore the origins and possible explanations for why this supposed puzzle is occurring.

The Puzzle
Week 1: Introductions, overview of of utility functions, risk-return relationship
Week 2: Overview of risk/return with CAPM (Sharpe 1964)
Week 3: First paper explaining the puzzle

Possible Solutions
Week 4: Constantinides, Habit formation
Week 5: Thaler, Myopic risk aversion
Week 6: Constantinides, Borrowing restrictions

Objectives:
– Math and theories: CAPM, Consumption choice
– Learn R (Winter) using datasets on equities (SP 500) and bonds
– Empirically estimate equity premium (Spring)