Econ 4370 Behavioral Finance Spring 2019

 

Economics 4370: Behavioral Finance

(Nau Hall 101 9:30 -10:45 Tues/Thurs)

FINAL EXAMINATION: Thursday, May 9, 2019 from 2 PM until 5 PM

While Office Hours are 11-12 Tuesday, Wednesday and Thursday, Prof Burton can often be found in his office in Monroe 262 all during the day on Tuesday and Wednesday


Professor Edwin T. Burton

434 924-4054

Office Hours: Tues, Wed, Thurs 11-12 AM at Monroe 262

burton@virginia.edu

Prospective students should take careful note of the office hour schedule and the office hour location. If this schedule conflicts with your classes or the location is difficult for you, you should consider not taking this course (if office hours are important to you). Also, note that exam dates that are posted. There are no make-ups. If you must miss an exam, you will need an excused absence.  Your remaining exams will be re-weighted to constitute your overall grade. Not being able to take the final as scheduled will result, at best, in an incomplete. For 4th years, this could jeopardize graduation. Missing any scheduled examination will require an excused absence to avoid receiving a zero for that examination.

Exam grading reviews are only available for the mid-terms.  There will be no exam grading review for the final exam.  Only if a mathematical error has occurred in adding up your final grade is it possible, under Arts and Science rules, can your grade be reconsidered.  If you feel a mathematical error has occurred, you can consult the grader for this course to inquire about the adding up of points for a particular exam.

No materials may be used while taking exams. No calculators or other items of any kind. All answers are written by students directly on the examination sheets passed out at the beginning of each exam.


Class meets on Tuesdays and Thursdays from 9:30 AM until 10:45 AM.   There is a considerable amount of reading in this course. The required books are the following:

{Although it is not required reading for this course, those of you who are sports enthusiasts should pick up a copy of Scorecasting by Tobias Moskowitz and Jon Wertheim, 2011. This would be a great book to read during the holidays and is relevant to Economics 437}

Behavioral Finance by Edwin T Burton & Sunit Shah, Wiley, March, 2013.

Inefficient Markets: An Introduction to Behavioral Finance by Andrei Shleifer, Oxford University Press, 2000

The Undoing Project by Michael Lewis, W. W. Norton and Company, 2016

 In addition to the three books above (and the Kahneman book that you have already completed prior to class, there are numerous journal articles that are available through the toolkit for this course.  All students registered in this course have automatic access to these articles.  For copyright reasons, if you are not registered for this course, you cannot access these articles online at the toolkit site, but must find the articles on your own.

Mid Term I, Tuesday, February 12, 2019 in Nau Hall 101

Mid Term II, Thursday, March 21, 2019 in Nau Hall 101

Final Exam, May 9, 2019 2 PM – 5 PM in Nau Hall 101


Exams are weighted 30% for each of the two mid terms; 40% for the final exam. Some consideration is given to improvement and giving due consideration to a strong final and one strong mid term. This does not, however, mean that an exam score is dropped. All exams count. An excused absence from a mid term means the weights are 3/7 for the other mid term and 4/7 for the final. All exams scores are relative to the mean for that exam.

The final examination is cumulative.  No examination may be skipped without a bona-fide excused absence (illness, etc.).

Please Note: If you cannot make the examinations as scheduled, please do not take this course. We do not give make-up examinations. If you are unable to take the final examination on time as scheduled, you will, at best, receive an incomplete for this course.  This means, for example, if you take the exam in SDAC, the time slot for the exam to be taken must overlap with the time of the final exam.  All applications to take the exam at a specific time in SDAC must be approved by Professor Burton in advance.  There are no exceptions.


The Main Topics Covered In This Course Are:

     1. Noise Trader Equilibrium Models, Limits to Arbitrage

     2. Irrationalities – the Kahneman-Tversky-Thaler critique of rationality

     3  Mean Reversion, The Over- and Under-reaction Hypotheses, Serial Dependence in Returns

Lectures:

Students should have already read “Thinking: Fast and Slow” by Daniel Kahneman

Tuesday, January 15. 2019: Introduction

Reading: Malkiel, Shiller, Fama (1970), Shleifer (Chapter One)

Thursday, January 17, 2019: EMH

 Tuesday, January 22, 2019: The Law of One Price

Reading: Black, Shleifer (Chapter Two), Burton & Shah, pages 1-51

Thurs, Jan 24 and Tuesday, Jan 29, 2019: Shleifer on “Limits to Arbitrage”

Thursday, January 31, 2019: The Shleifer Model

Tuesday, February 5, 2019: Class Cancelled

Thursday, February 7, 2019: Shleifer’s Conclusions; Review for Mid-Term

 Tuesday, February 12, 2019: First Mid-Term Examination (Nau Hall 101 at 9:30 AM)

Thursday, February 14, 2019: Hedge Funds and PE Funds — a Digression

Readings:  Kahneman: Thinking: Fast and Slow, Michael Lewis:  The Undoing Project
    In addition to Kahneman and Lewis (see above), read
    Burton and Shah, Chapters 8 -13, pages 81-143

Tuesday, February 19, 2019: Expected Utility Theory

Thursday, February 21, 2019: Anomalies, Part I

Tuesday, February 26, 2019: Anomalies, Part IIThursday, April 4, 2019: The Debate over Contrarian Investing

Thursday, February 28, 2019: Anomalies, Part III

Tuesday, March 5, 2019: Loss Aversion and Prospect Theory

Thursday, March 7, 2019: More on Prospect Theory and Anomalies

Spring Break March 9-17, 2019

Readings required to the Second Mid-Term are those listed after Feb 14th lecture (see above)

Thursday, March 21, 2019: Second Mid-Term Examination (Nau Hall 101 at 9:30 AM)

Readings: March 28th – March 28th: Fama-French Article in Collab; DeBondt-Thaler Article in Collab

Tuesday, March 26, 2019: Fama-French: A Bell Rings for Behavioral Finance

Thursday, March 28, 2019: DeBondt-Thaler: Mean Reversion

Readings: Burton & Shah: Chapters 14 and 15

Readings: Lakonishok, Shleifer and Vishny article on Collab

Tuesday, April 1, 2019: Momentum Investing

Thursday, April 4, 2019: The Debate over Contrarian Investing

Readings: Burton & Shah: Chapters 16 and 17
                   Lakonishok Smidt article on Collab

Thursday, April 11, 2019: Calendar Effects

Readings: Burton & Shah: Chapters 18 and 19
                   Acharya & Pedersen 2005 on Collab
                   Korajczyk and Sadka 2008 on Collab

Tuesday, April 16, 2019: Equity Premium Puzzle

Thursday, April 18, 2019: Liquidity: Is it Priced?

Tuesday, April 23, 2019: Corporate Governance

Thursday, April 25, 2019: More on Corporate Governance

Tuesday: April 30, 2019: Last Class Meeting: Review for Final
                  

Thursday, May 9, 2018: 2PM – 5PM: Final Examination in Nau 101