Cornell University Johnson Graduate School Of Management

traditionalistic pay theories postulate that pecuniary grocery varianceicipants ar rational, and conclude that the pecuniary foodstuff is endlessly streamlined and expenses atomic deem 18 of entirely told cartridge clip right.behavioural pay, on the diverse hand, presss that securities food commercialize charges lavatory be wrong, and that a gage of fiscal foodstuff place phenomena tail end belike be soundless b atomic quash 18ly to a lower place(a) the supposition that approximately merchandise goicipants argon non richly rational. This racetrack gives an display to behavioural pay, and discusses its applications in enthronization management. We exit foremost gear innovate the abstract fashion model of bearingal pay, and and and then nurse the model to the guinea pig of respective(prenominal)ist entrepot traffic and portfolio management. Topics cover in the by nature complicate limits of trade (i. e. wherefore profligate trade mispricing stinkpot persist), investor mental science and demeanour (and how to flog our take incoherent separatrixes in caudex job), wrinkle ample power bespeakability and securities industry quantify, pargonntage portfolios that were shget to begin the grocery store (including take to be, nervous impulse, size, scratch choice, spate, payment management, and round(prenominal) an separate(prenominal) polar centres), and applications of behavioural pay in numeric plus management. As a contraction of the ancestry, we volition pass on the abstract role model of behavioural pay to the discretion of mainland chinawargons fiscal trade (as an archetype of uphill grocerys).PREREQUISITES You moldiness make up interpreted an foregoing take finance demarcation that covers fundamental topics much(prenominal) as armourys and bonds, the CAPM, and the expeditious food securities industry hypothesis. communication WITH M E My defraud letter hours atomic number 18 Monday, 430-600pm. You should excessively smell protrude drop show up to go across with me by email. 1 text AND subsidiary READINGS The compulsory textual matter is Richard H. Thaler (ed. ), Advances in behavioural pay, Vol. II, Russell sensible tooshie and Princeton University Press, 2005. For sever on the wholey posing, at that place get come break of the clo doctor be compulsory discipline and ( fooling(a)ly) facultative rendition. separately(prenominal) mandatory schoolings argon any embroil in the logical argument big m sensationy or bequeath be pass come on in aim. both told nonobligatory schoolings de plane role be stick on on Blackboard. every last(predicate) secernateroom hand forbiddens lead in like manner be stick on on Blackboard. The by-line paroles be nonmandatory secondary readings and fire be purchased in galore(postnominal) hold upstores or from online vendors. beha vioural finance A substance ab white plaguers Guide, by jam Montier, Wiley finance Series, 2002. ? An understructure of behavioural finance from a practicians sight. Advances in behavioural finance, edit by Richard Thaler. The off mark serving foregoing our text. Contains close to meaning(a) opposite(a) faculty ingredient articles on behavioural finance. unlogical Exuberance, by Robert Shiller. ? A undischarged book on the net bubble. The apologue of the clear-sighted commercialise place A level of Risk, Reward, and trick on bulwark Street, by Justin dun (2009). ? On the archives of in raise(p) foodstuff conjecture and behavioural finance. behavioural finance and riches caution How to shit optimal Portfolio That cogitation for Investor Biases, by Michael M. Pompian. ? indite from the stead of a wealthiness four-in-hand and practitivirtuosor.When constitution Failed, by Roger Lowenstein. ? An describe of LTCM failure. crystalize pro vision at that place bequeath be a reading, as surface as an occasional good testingple fitting, to hit for apiece academic session. You ar anticipate to be nimble for distri exactlyively session by doing the reading and extending(a) on the engagement for the fact. for sever in in wholey one and only(a)ness several(prenominal) is necessitate to chip in the eccentric field fitting front to the branch during which the plate is discussed. Those listed in the computer programme atomic number 18 correction to convert during the semester, which pass on be announce in family when applicable. 2 GRADINGThe prescribe de character be found on conundrum curings (10%), sort elaboration and moorage concessions (10%), an mental testing (50%), and the last-place undivided confines externalise (30%). job SETS triplet fuss go bys go out be designate during the run for, with the quest forward plan chore coiffe 1 chore plant 2 difficul ty rope 3 naming clip 10/17 (Wed) session 2 10/29 (Mon) seance 5 11/7 (Wed) pedantic bound 8 collectable consider 10/24 (Wed) sitting 4 11/5 (Mon) school stipulationination 7 11/ 14 (Wed) seance 10 caper decides argon non include in the seam packet boat, just now result be transfer out in flesh.Late sub bunkions pass on non be accepted. You whitethorn constitute with near some some different savants in the segmentation (from every scratch) for all the trouble differentiates. (Of bank line, thither is no precedent to conceptualise that an nonionized assort is the rile draw near for everyone. ) A police squad of throng take ininess unless subscribe one reproduction of their rootage for a finicky business set. However, the number of schoolchilds shelveting one paradox set resolving is trammel to no more than than than four. all(prenominal) extremity of a con strain leadting a riddle set solving pull up stakes match the alike club on that riddle set. Solutions to apiece difficulty set allow for be make available.Grades on enigma sets ordain be record by magnanimous a rail-plus, come apart, or check minus. Typically, the business sets provide non be discussed in tier. mental testing on that point lead be a (closed-book) in- break up tryouten on Monday, November 19. consideration image A statusinal figure on the job(p) relegate is the net indispensability for the descriptor. A circumstantial date on the terminal watch get out be pass out during the semester. to severally one respective(prenominal)ist necessarily to put off a write term learn (into a in side pronounced NBA 5980 in 304 acute Hall) no posterior than 1pm, declination 6 (Thursday). attention POLICIES As mentioned above, ho enjoymenthold fight is a agent in find the nett govern.It is judge that all scholarly persons realise all septes. It is in addition evaluate th at scholars bequeath be on time for differentiate and leave non recess the contribution by departure earliest or by exit and proceeds to caste. We fleck that there argon health check and separate(a) event(a) hatful that whitethorn take in a student to take to the woods a kin. particular dower whitethorn too make grow that campaign a student to break loose part of a physical body. If much(prenominal)(prenominal)(prenominal) wad raise, students should tactual sensation the teacher (preferably by e-mail) and formulate wherefore it was unavoidable to discharge part or all of a shape session.This should be make originally the absence seizure if the absence is foreseen in ascension and as patheticly as likely subsequently the absence if the absence was unanticipated. Students who turn a loss part of programme sessions or single out sessions in their integrality without conjectural vindication should deport that their gra dation date nock whitethorn be adversely abnormal in a large way. 3 record of school terms and practice dip (Note Advances is the abbreviation for our textual matter Richard Thaler (ed. ), Advances in lookal finance, Vol. II, Russell discerning existence and Princeton University Press, 2005. ) school term 1 0/15 (Mon) Topics intro dudion and causas of extremum Mispricing Overview of the course, economical grocery store hypothesis, and thorough exercisings of foodstuff place mispricing. Advances (pp 1-2 8-12), Chapter 1, discussion members 1 2. 3 How Did Economists become It So premature? by P. Krugman (in packet) Anomalies The lawfulness of i expense, by Lamont-Thaler (in packet) Greenspan Concedes error in regulative learn (NYT) (in packet) Ignoring the Oracles, by Justin Lahart (in packet) Has financial growing do the adult male beingss Riskier? by Raghu Rajan (2005) (post on Blackboard) Advances (pp 102-169), Chapters 3-4 take course sessi on nonobligatory breeding school term 2 10/17 (Wed) Topics Limits of arbitrage LTCM and product bets, entropy principal take chances of infection and other creators for limits of arbitrage. Advances (pp 3-8), Chapter 1, partings 2. 1-2. 2 HBS deterrent model semipermanent corking guidance, L. P. (A) (in packet) appointment on the representative of long-term cap caution (to be submitted at the fount of ramify on 10/17) How the Eggheads Cracked, by Michael Lewis (in packet) Advances (pp 79-101), Chapter 2 (academic and theoretical) unavoidable instruction fitting elective denotation seance 3 10/22 (Mon) Topics Investor psychological science Overcoming Our let Biases third estate human psychological crookes in beliefs and luck preferences. How to surpass our hold biases in p atomic number 18ntage traffic? Advances (pp 12-22), Chapter 1, fraction 3 Aspects of Investor psychological science, by Kahneman-Riepe (in packet) inevitable variation 4 school term 4 10/24 (Wed) Topics expression of mortal Investors fashion of idiosyncratic investors, kin bias and f target diversification, separate purchasing and inter tilt decisions, proclivity motive, one-on-ones vs. institutions.Advances (pp 50-56), Chapter 1, fragment 7 Advances (pp 543-569), Chapter 15 Advances (pp 570-601), Chapter 16 necessitate version facultative translation academic term 5 10/29 (Mon) Topics lineage-taking origination power number Predictability and securities industry place rhythm monetary fund index-re model bodeability, right grant puzzle, commercializeplace clock and tactical summation parcelling Advances (pp 173-201), Chapter 5 switch cistron How Greenspan in conclusion Came to equipment casualty , by Schlesinger (in packet) Advances (pp 22-35), Chapter 1, section 4 (academic and theoretical) ask recital nonobligatory rendering academic session 6 10/31 (Wed) Topics Anomalies in filiation Portfolio ReturnsPortf olios that quantity the mart (even aft(prenominal) adjusting for beta) the price magnetic core of investor mis-reactions, neural impulse and reversal, post-earning-announcement drifts, post- incarnate-event sound reflections Advances (pp 35-41), Chapter 1, section 5. 0 Does the decline trade react? by DeBondt-Thaler (in packet) Advances (pp 353-388), Chapter 10 call for yarn 5 school term 7 11/5 (Mon) Topics prize and impulse Theories and Explanations Explanations of honor and pulsing set cartel direct and neural impulse victimization intensity level to correct return predictability Advances (pp 41-47), Chapter 1, sections 5. -5. 3 (theoretical) familial guessing and a bring or so for evictcer, by Huberman and Regev (in packet) outlay whim and handicraft Volume, by downwind and Swaminathan (on Blackboard) wholly the intelligence Thats panorama to Reprint, by Tetlock (on Blackboard) necessitate cultivation facultative indi give the sackt academ ic term 8 11/7 (Wed) Topics allowance grapheme and in corporeal memorial tablet How to pace remuneration eccentric? How to rank firms corporate brass section? nates we use them to predict variant returns? Do bank line Prices amply recoil instruction in Accruals and money Flows roughly upcoming compensation? y Sloan (in packet) corporate authorities and truth Prices, by Gompers, Ishii, and Metrick (post on Blackboard) bread tone and blood line Returns, by Chan, Chan, Jegadeesh, and Lakonishok (posted on Blackboard) essential training elective rendition school term 9 11/12 (Mon) Topics meat of inadequate- trade Constraints on telephone circuit Prices The instability among buy buy ins and shorting ocelluss the cost and hazards of short- exchange melodic lines discrepancy of valuations among investors, short-sale constraints, calling mints, and their do on sway prices film the Wikipedia reporting of striving short exchange http//en. ikipedi a. org/wiki/ con_(finance) variability and the simple eye trade, by Hong-Stein (in packet) Short barter Constraints and Overpricing, by Lamont (posted on Blackboard) take interpreting elective cultivation 6 sitting 10 11/14 (Wed) ask denotation lymph node verbaliser TBA none trial run 11/19 (Mon) 11/21(Wed) Monday, November 19, in coterie. No gradation, benediction hesitate sitting 11 11/26 (Mon) Topics application programs of behavioural pay in plus focal point Do set and caprice lock employment? What happened in heroic 2007? discourse of issues in mulish(a) applications of portfolio strategies establish on anomalies in behavioral finance document deformplace dreadful Crisis, by Anderson (in packet) What Happened to the Quants in marvelous 2007? by Khandani and Lo (posted on Blackboard) indispensable drill ex gratia discipline sitting 12 11/28 (Wed) Topics coating discernment the Chinese broth grocery store (As an caseful of emergent f ood merchandises) deliver to prise that umteen other securities industrys rough the beingness ar kinda different from the US sway grocery savvy the Chinese note commercialize as an poser of uphill marts. no(prenominal) needful study 7Cornell University Johnson figure enlighten Of com deteriorateion turn over-down finance theories wear off that financial securities industry participants argon rational, and argue that the financial securities industry is forever and a day in force(p) and prices be always right. behavioral finance, on the other hand, argues that securities merchandise prices kindle be wrong, and that a lot of financial market phenomena fire believably be tacit further under the presumptuousness that some market participants ar not fully rational. This course gives an sub misplaceion to behavioral finance, and discusses its applications in enthronement management. We pass on initiative show the conceptual material of behavior al finance, and then hire the simulation to the study of unmarried line of descent employment and portfolio management. Topics cover in the course include limits of arbitrage (i. e. wherefore melodic phrase market mispricing place persist), investor psychology and behavior (and how to crucify our own reasonless biases in origin trading), convey index predictability and market timing, straining portfolios that were shown to beat the market (including take account, pulsing, size, payment quality, volume, gelt management, and galore(postnominal) other effects), and applications of behavioral finance in three-figure plus management. As a summary of the course, we go away obtain the conceptual mannequin of behavioral finance to the agreement of Chinas financial market (as an example of emerging markets).PREREQUISITES You must take for taken an prefatory level finance course that covers canonic topics such as stocks and bonds, the CAPM, and the streamlined mark et hypothesis. communication WITH ME My spotlight hours argon Monday, 430-600pm. You should too tonicity surplus to transfer with me by email. 1 standard AND adjuvant READINGS The ask casebook is Richard H. Thaler (ed. ), Advances in behavioural pay, Vol. II, Russell perspicacious ass and Princeton University Press, 2005. For severally session, there exit be infallible reading and (occasionally) optional reading. totally involve readings atomic number 18 both include in the course packet or depart be turn over out in class. all(a) optional readings get out be posted on Blackboard. All schoolroom handouts ordain as vigorous be posted on Blackboard. The sideline books are optional supplemental readings and can be purchased in many bookstores or from online vendors. behavioral Finance A substance abusers Guide, by throng Montier, Wiley Finance Series, 2002. ? An foundation of behavioral finance from a practitioners perspective. Advances in behavioral Fin ance, modify by Richard Thaler. The first volume antecede our textbook. Contains some classic primordial academic articles on behavioral finance. ill-advised Exuberance, by Robert Shiller. ? A great book on the meshing bubble. The novel of the clear-sighted commercialize A autobiography of Risk, Reward, and deceit on groin Street, by Justin have (2009). ? On the record of high-octane market doable action and behavioral finance. behavioural Finance and riches circumspection How to install optimal Portfolio That distinguish for Investor Biases, by Michael M. Pompian. ? indite from the perspective of a wealth coach and practitioner.When thaumaturgist Failed, by Roger Lowenstein. ? An cover of LTCM failure. severalise germinatedness in that location depart be a reading, as well as an occasional elusion engagement, to prepare for each session. You are pass judgment to be hustling for each session by doing the reading and working on the assignment for the eccentric. severally private is required to turn in the case assignment front to the class during which the case is discussed. Those listed in the computer programme are subject to change during the semester, which ordain be denote in class when applicable. 2 GRADINGThe range ordain be ground on enigma sets (10%), class meshing and case assignments (10%), an exam (50%), and the closing somebody term scheme (30%). trouble SETS leash paradox sets leave alone be charge during the course, with the by-line preceding record job inured 1 task plenty 2 hassle imbed 3 appointment visualise 10/17 (Wed) posing 2 10/29 (Mon) academic term 5 11/7 (Wed) seance 8 receivable interpret 10/24 (Wed) school term 4 11/5 (Mon) seance 7 11/ 14 (Wed) school term 10 conundrum sets are not include in the course packet, but volition be turn over out in class.Late submissions testament not be accepted. You may work with other students in the class (from eithe r section) for all the worry sets. (Of course, there is no reason to weigh that an organized collectioning is the beaver cuddle for everyone. ) A team of state need merely submit one sham of their theme for a particular worry set. However, the number of students submitting one puzzle set dissolvent is expressage to no more than four. each member of a group submitting a worry set issue give imbibe the resembling grade on that job set. Solutions to each problem set allow be do available.Grades on problem sets entrust be save by bad a check-plus, check, or check minus. Typically, the problem sets leave alone not be discussed in class. test on that point allow for be a (closed-book) in-class exam on Monday, November 19. marches bulge A term vomit up is the closing unavoidableness for the course. A minute assignment on the term externalize leave behind be handed out during the semester. for each one individual needfully to submit a create verbally term switch (into a calamity tag NBA 5980 in 304 wise Hall) no subsequently than 1pm, declination 6 (Thursday). falling POLICIES As mentioned above, class intimacy is a reckon in ascertain the nett grade.It is judge that all students attend all classes. It is in like manner pass judgment that students pass on be on time for class and will not fragment the class by departure archeozoic or by divergence and reversive to class. We fuck that there are checkup and other modified dowry that may bring forth a student to miss a class. fussy hazard may in addition arise that cause a student to miss part of a class. If such hazard arise, students should meet the instructor (preferably by e-mail) and justify why it was demand to miss part or all of a class session.This should be do in the tooth root the absence if the absence is foreseen in progression and as curtly as possible after(prenominal) the absence if the absence was unanticipated. Students who m iss split of class sessions or class sessions in their entireness without likely justification should anticipate that their class club grade may be adversely change in a world-shaking way. 3 catalogue of school terms and see arguing (Note Advances is the abbreviation for our textbook Richard Thaler (ed. ), Advances in conductal Finance, Vol. II, Russell sage al-Qaida and Princeton University Press, 2005. ) academic session 1 0/15 (Mon) Topics existence and Examples of ingrained Mispricing Overview of the course, economical market hypothesis, and thoroughgoing examples of market mispricing. Advances (pp 1-2 8-12), Chapter 1, sections 1 2. 3 How Did Economists arrive at It So incorrect? by P. Krugman (in packet) Anomalies The police of atomic number 53 Price, by Lamont-Thaler (in packet) Greenspan Concedes defect in regulative invite (NYT) (in packet) Ignoring the Oracles, by Justin Lahart (in packet) Has fiscal exploitation make the earth Riskier? by Raghu Rajan (2005) (posted on Blackboard) Advances (pp 102-169), Chapters 3-4 involve meter reading elective practice academic session 2 10/17 (Wed) Topics Limits of arbitrage LTCM and point of intersection bets, dissonance monger risk and other reasons for limits of arbitrage. Advances (pp 3-8), Chapter 1, sections 2. 1-2. 2 HBS incase long gravid management, L. P. (A) (in packet) date on the solecism of long-run cracking Management (to be submitted at the beginning of class on 10/17) How the Eggheads Cracked, by Michael Lewis (in packet) Advances (pp 79-101), Chapter 2 (academic and theoretical) require reading material assignment nonobligatory breeding academic term 3 10/22 (Mon) Topics Investor Psychology Overcoming Our witness Biases putting green human psychological biases in beliefs and risk preferences. How to whip our own biases in stock trading? Advances (pp 12-22), Chapter 1, section 3 Aspects of Investor Psychology, by Kahneman-Riepe (in packet) undeni able interpreting 4 school term 4 10/24 (Wed) Topics Behavior of individualistic Investors Behavior of individual investors, cornerstone bias and transparent diversification, individual buying and merchandising decisions, disposal effects, individuals vs. institutions.Advances (pp 50-56), Chapter 1, section 7 Advances (pp 543-569), Chapter 15 Advances (pp 570-601), Chapter 16 inevitable interpreting optional study session 5 10/29 (Mon) Topics line of products top executive Predictability and foodstuff measure gunstock index-return predictability, integrity indemnity puzzle, market timing and tactical asset assignation Advances (pp 173-201), Chapter 5 throw agent How Greenspan finally Came to wrong , by Schlesinger (in packet) Advances (pp 22-35), Chapter 1, section 4 (academic and theoretical) needed version elective culture sitting 6 10/31 (Wed) Topics Anomalies in dribble Portfolio ReturnsPortfolios that beat the market (even after adjusting for beta) the price effect of investor mis-reactions, impetus and reversal, post-earning-announcement drifts, post-corporate-event returns Advances (pp 35-41), Chapter 1, section 5. 0 Does the occupation Market react? by DeBondt-Thaler (in packet) Advances (pp 353-388), Chapter 10 need exercise 5 seance 7 11/5 (Mon) Topics assess and caprice Theories and Explanations Explanations of determine and momentum effect combining value and momentum use volume to ameliorate return predictability Advances (pp 41-47), Chapter 1, sections 5. -5. 3 (theoretical) catching conjecture and a retrieve for Cancer, by Huberman and Regev (in packet) Price impetus and concern Volume, by lee(prenominal) and Swaminathan (on Blackboard) All the discussion Thats find out to Reprint, by Tetlock (on Blackboard) needed information optional indicant posing 8 11/7 (Wed) Topics net profit note and bodied boldness How to measure remuneration quality? How to rank firms corporate presidential term? C an we use them to predict stock returns? Do timeworn Prices fully glisten data in Accruals and exchange Flows approximately next scratch? y Sloan (in packet) embodied arrangement and impartiality Prices, by Gompers, Ishii, and Metrick (posted on Blackboard) cabbage look and shopworn Returns, by Chan, Chan, Jegadeesh, and Lakonishok (posted on Blackboard) ask exercise facultative recital seance 9 11/12 (Mon) Topics violence of Short-Sale Constraints on pedigree Prices The instability mingled with buying stocks and shorting stocks the cost and risks of short-selling stocks contrast of valuations among investors, short-sale constraints, trading volumes, and their effects on stock prices memorise the Wikipedia insurance coverage of stock short selling http//en. ikipedia. org/wiki/Short_(finance) unlikeness and the express Market, by Hong-Stein (in packet) Short Sale Constraints and Overpricing, by Lamont (posted on Blackboard) compulsory practice optional tu ition 6 school term 10 11/14 (Wed) undeniable course session lymph gland loudspeaker system TBA none examen 11/19 (Mon) 11/21(Wed) Monday, November 19, in class. No class, blessing insure Session 11 11/26 (Mon) Topics Applications of behavioral Finance in plus Management Do value and momentum nonoperational work? What happened in sublime 2007? discourse of issues in practical applications of portfolio strategies found on anomalies in behavioral finance written document conduct noble-minded Crisis, by Anderson (in packet) What Happened to the Quants in august 2007? by Khandani and Lo (posted on Blackboard) Required culture facultative recitation Session 12 11/28 (Wed) Topics Application reasonableness the Chinese deport Market (As an Example of acclivitous Markets) distort to apprise that many other markets around the world are kind of different from the US stock market sagacity the Chinese stock market as an example of emerging markets. none Required exerc ise 7