Seminar ABWL

Seminar ABWL - Asset Pricing Puzzles

Winter Term 2005/2006

(in English)

Block seminiar: 13/14 January 2006 in D 201.

First meeting: October 25, 2005, F208, 2pm.

Asset pricing puzzles are an ubiquitous feature of finance and much effort has been exerted in
order to understand them. They pose extraordinary challenges to our common understanding of
finance and we want to explore them in this seminar. In particular, we want to compare the
classical, rational solution approaches and the new behavioral perspective.

If you like one of the topics below and it has not been taken so far, then please email your interest
to Mrs. Fischer (Monika.Fischer at uni-konstanz.de).

Topics:

1. Closed End Fund Puzzle

2. Equity Risk Premium Puzzle

3. Day of the Week Effects, Year End Effect

4. Fama French Factors, “CAPM is Dead”

5. Pricing Kernel Puzzle

6. The Dividend Puzzle

7. IPO Underpricing Puzzle

8. Home Bias Puzzle

9. Bubbles and Crashes

10. Excess Volatility Puzzle

The requirements for this seminar are threefold and will all contribute to the final grade (all

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contributions are required to be in English):

ƒ The preparation of a 12-15 page literature review and its presentation at the block seminar.
2 hardcopies due December 15, 2005 during office hours 9-12 F328. Please use the
guidelines on writing your diploma thesis, which can be found at the homepage
economics. However, please stable the paper, don't use a folder. Pick up the hardcopy of
the paper you are discussing on Monday 19 December, during office hours. I value if you
find independent research papers or sources, starting points are www.ssrn.com and
www.google.com for looking up authors or to find an electronic copy of a paper you
would like to read. Historical data can at time be found on Yahoo Finance. Weight 50% of
grade.

ƒ A 2-3-page discussion of the paper of one of your colleagues and its presentation at the
block seminar. Weight 25 % of grade.

ƒ Oral participation in the discussions at the block seminar. Weight 25 % of grade.

You have to submit a short outline by November 8, 2005. Please email your outline to me
(Jens.Jackwerth at uni-konstanz.de). I will look it over and warn you if you are going wrong. This
is required but does not count toward the grade.

I am looking forward to seeing you.

Sincerely,

Jens Jackwerth

General literature:
“Inefficient Markets; an introduction to behavioral finance”, Anderei Schleifer, published by
Oxford University Press, 2000, Oxford

“Advances in behavioral finance; II”, Richard H. Thaler, will be published by Russell Sage
Foundation, 2005, New York

“Behavioral corporate finance; a survey”, Malcolm Baker and Richard S. Ruback and Jeffrey
Wurgler, published by National Bureau of Economic Research, 2004, Cambridge, Mass.

“A survey of behavioral finance”, Nicholas Barberis and Richard Thaler, published by National
Bureau of Economic Research, 2002, Cambridge, Mass.

“Investments”, Sharpe, William F. and Alexander, Gordon J. and Bailey,Jeffery V. published by

Prentice Hall, 1999, Upper Saddler River, NJ

1. Closed End Fund Puzzle

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1. Cherkes, Martin (2003). “A Positive Theory of Closed-End Funds as an Investment Vehicle”,

Working Paper, Princeton University, July

2. Dimson, Elroy and Minio-Kozerski, Crolina (1998). “Closed-End Funds: A Survey”, Working
Paper, London Business School and J.P. Morgan Chase & Co., October

3. Doukas, John A. and Milonas, Nikolaos T. (2002). “Investor Sentiment and the Closed-end
Fund Puzzle: Out-of-Sample Evidence”, Working Paper, OldDominion University and National
& Kapodistrian University of Athens, December

4. Garay, Urbi (2001). “The Behavior of Asian and Latin American Closed-End Country Funds
and Investment Trusts Premiums Following the Asian Financial Crisis”, working Paper, IESA,
June

5. Ross, Stephen A. (2005). Chapter 4 in “Neoclassical Finance”, published by Princeton

University Press, ISBN 0-691-12138-9

6. Russel, Philip and Malhotra, D. K. (2004). “Unraveling the Closed-End Funds Pricing Puzzle:
Some New Evidence”, Working Paper, Philadelphia University, January

7. Spiegel, Matthew I. (1998). “Closed-End Fund Discounts in a Rational Agent Economy”,

Working Paper, Yale School of Management, International Centerfor Finance, January

2. Equity Risk Premium Puzzle

1. Engsted, Tom and Mammen, Enno and Tanggaard, Carsten (2001). “Evaluating the C-CAPM
and the Equity Premium Puzzle at Short and Long Horizons: A Markovian Bootstrap Approach”,
Working Paper, Aarhus School of Business and University of Heidelberg, May

2. Gabaix, Xavier and Laibson, David (2001). “The 6D Bias and the Equity Premium Puzzle”,
Working Paper, Massachusetts Institute of Technology and Harvard University,June

3. Kocherlakota, Narayana R (1996). “The Equity Premium: It's Still a Puzzle”, Journal of
Economic Literature 34, 42-71, March

4. Kurz, Mordecai and Beltratti, Andrea (1996). “The Equity Premium is No Puzzle”, Working
Paper, Stanford Graduate School of Business and Universita Bocconi, Feburary

5. Li, Haitao and Xu, Yuewu (1999). “Can Survival Bias Explain the 'Equity Premium Puzzle'?”,
Working Paper, Cornell University, May

6. Mehra, Rajnish (2003). “The Equity Premium: Why is it a Puzzle?”, Working Paper,
University of California, February

7. Mehra, Rajnish and Prescott, Edward C. (1985). “The Equity Premium: A Puzzle”, Journal of
Monetary Economics, 15(2), 61-145, March

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8. Moskowitz, Tobias J. and Vissing-Jorgensen, Annette (2000). “The Private Equity Premium
Puzzle”, Working Paper, University of Chicago and Northwestern University, November

3. Day of the Week Effects, Year End Effect

1. Easterday, Kathryn E. (2005). “The Declining January Effect? An Examination of Monthly
Market Returns for Firms Trading on NYSE, AMEX and NASDAQ ”, Working Paper,
University of Cincinnati, February

2. Galai, Dan and Kedar-Levy, Haim (2002). “Multiple Comparisons of Return Distributions: A
New Look at the Day-of-the-Week Effect”, Working Paper, Hebrew University of Jerusalem and
Ben-Gurion University of the Negev, Feburary

3. Hansen, Peter Reinhard and Lunde, Asger and Nason, James M. (2005). “Testing the
Significance of Calendar Effects”, Working Paper, Stanford University and Aarhus School of
Business and Federal Reserve Bank of Atlanta,January

4. Mehdian, Seyed M. and Aly, Hassan Yousset and Perry, Mark J. (2004). “An Analysis of
Day-of-the-Week Effects in the Egyptian Stock Market”, Working Paper, International Journal of
Business, May

5. Patev, Plamen Georgiev and Lyroudi, Katerina and Kanaryan, Nigokhos Krikorov (2004).
“The Day of the Week Effect in the Central European Transition Stock Markets”, Working Paper,
Tsenov Academy of Economics and University of Macedonia, January

6. Singal, Vijay and Chen, Honghui (2001). “What Drives the January Effect?”, Working Paper,
Virginia Polytechnic Institute & State University and University of Central Florida, April

4. Fama French Factors, “CAPM is Dead”

1. Ajili, Souad (2004). “Size and Book to Market Effects vs. Co-skewness and Co-kurtosis in
Explaining Stock Returns”, Working Paper, Université Paris IX Dauphine – CEREG , December

2. Carhart, Mark M. (1997). “On Persistence in Mutual Fund Performance”, Working Paper,
GSAM Quantitative Strategies Group, March

3. Chung, Y. Peter and Johnson, Herb and Schill, Michael J. (2004).“Asset Pricing When
Returns Are Nonnormal: Fama-French Factors vs. Higher-Order Systematic Co-Moments”,
Working Paper, University of California at Riverside and University of California and University
of Virginia, February

4. Fama, E. F. and French, K. R. (1993). “Common risk factors in the returns on stocks and
bonds” Journal of Financial Economics, 33, pp. 3-56.

5. Griffin, John M. (2002). “Are the Fama and French Factors Global or Country-Specific?”,

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Working Paper, University of Texas at Austin,January

6. Guidolin, Massimo and Timmermann, Allan G. (2005). “Size and Value Anomalies under
Regime Shifts”, Working Paper, Federal Reserve Bank of St. Louis and University ofCalifornia,
March

7. Porras, David M. (1998). “The CAPM vs. the Fama and French Three-Factor Pricing Model:
A Comparison Using Value Line Investment Survey”, Working Paper, Quincy University, May

8. Womack, Kent L. and Zhang, Ying (2003). “Understanding Risk and Return, the CAPM, and
the Fama-French Three-Factor Model”, Working Paper, Dartmouth College, December

5. Pricing Kernel Puzzle

1. Balduzzi, Pierluigi and Kallal, Hedi (1997). “Risk Premia and Variance Bounds”, Working
Paper, Boston College and Salomon SmithBarney, Inc, December

2. Bernardo, Antonio and Ledoit, Olivier (2000). “Gain, Loss, and Asset Pricing”, Working
Paper, University of California and Credit Suisse First Boston, February

3. Branger, Nicole and Schlag, Christian (2003).“Why is the Index Smile So Steep?”, Working
Paper, Goethe University Frankfurt and Goethe University, April

4. Chabi-Yo, and Fousseni and Rene, Garcia, and Eric, Renault (2004). “State Dependence in
Fundamentals and Preferences Explains Risk Aversion Puzzle”, Working Paper, Universite de
Montreal and Bank of Canada, November

5. Chernov, Mikhail (2000). “A Case of Empirical Reverse Engineering: Estimation of the Pricing
Kernel”, Working Paper, Columbia Business School, March

6. Jackwerth, Jens Carsten and Brown, David P. (2002). “The Pricing Kernel Puzzle: Reconciling
Index Option Data and Economic Theory”, Working Paper, Universität Konstanz and University
of Wisconsin – Madison, February

7. Rosenberg, Joshua V. and Engle, Robert E. (2002). “Empirical Pricing Kernels”, Working
Paper, Federal Reserve Bank of New York and New York University, June

8. Ziegler, Alexander (2002). “Why Does Implied Risk Aversion Smile?”, Working Paper,
University of Lausanne, May

6. The Dividend Puzzle

1. Bernheim, B. Douglas (1990). “Tax Policy and the Dividend Puzzle”, Working Paper,
Stanford University, September

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2. Bratton, William W. (2004). “The New Dividend Puzzle”, Working Paper, Georgetown
University Law Center, July

3. Deangelo, Harry and Deangelo, Linda (2004). “Payout Policy Irrelevance and the Dividend
Puzzle”, Working Paper, University of Southern California, March

4. Frankfurter, George (1999). “What is the Puzzle in the Dividend Puzzle”, Working Paper,
University of Florida April

5. Milonas, Nikolaos T. and Travlos, Nickolaos G. (2001). “The Ex-dividend Day Stock Price
Behavior in the Athens Stock Exchange”, Working Paper, National & Kapodistrian University of
Athens and Athens Laboratory of Business Administration,June

6. Milonas, Nikolaos T. and Travlos, Nickolaos G. and Xiao, Zezhong and Tan, Cunkai (2002).
“The Ex-Dividend Day Stock Price Behavior in the Chinese Stock Market”, Working Paper,
National & Kapodistrian University of Athens and Athens Laboratory of Business Administration
and University of Wales System, April

7. Grullon, Gustavo and Michaely, Roni (2000). “Dividends, Share Repurchases, and the
Substitution Hypothesis”, Working Paper, Rice University and Cornell University, April

7. IPO Underpricing Puzzle

1. Bachmann, Ralph (2004). “Theory of IPO Underpricing, Issue Activity, and Long-Run
Underperformance”, Working Paper, Nanyang Technological University, September

2. Lungqvist, Alexander (2004). “IPO Underpricing: A Survey”, Working Paper, New York
University, CEPR and ECGI, October

3. Loughran, Tim and Ritter, Jay R. (2002). “Why Has IPO Underpricing Changed Over Time?”,
Working Paper, University of Notre Dame and University of Florida, December

4. Reese JR., William A. (1998). “IPO Underpricing, Trading Volume, and Investor Interest”,
Working Paper, Tulane University, September

5. Sherman, Ann E. and Titman, Sheridan (2002). “Building the IPO Order Book: Underpricing
and Participation Limits With Costly Information”, Working Paper, University of Notre Dame
and University of Texas at Austin, Oktober

6. Liu, Ti (2003). “Investment without Risk: An Empirical Investigation of IPO Underpricing in

China”, Working Paper, Shanghai Stock Exchange, July

8. Home Bias Puzzle

1. Cooper, Ian and Kaplanis, Evi (1994). “Home Bias in Equity Portfolios, InflationHedging, and

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International Capital MarketEquilibrium”, Review of Financial Studies, Vol. 7, No.1, 45-60,

Spring

2. Feldman, David and Bar Niv, Moshe (2004). “Forum Selection in International Business
Contracts: Home Bias Portfolio Puzzle and Managerial Moral Hazard”, Working Paper,
University of New South Wales and InterdisciplinaryCenter Herzliyah, April

3. Michaelides, Alexander (2002). “International PortfolioChoice, Liquidity Constraints and the

Home Equity Bias Puzzle”, Working Paper, LondonSchool of Economics, August

4. Nieuwerburgh, Stijn Van and Veldkamp, Laura (2005). “Information Immobility and the
Home Bias Puzzle”, Working Paper, New York University, March

5. Pesenti, Paolo A. and Wincoop, Eric Van (1996). “Do Nontraded Goods Explain the Home
Bias Puzzle?”, Working Paper, Federal Reserve Bank of New York and University of Virginia,
October

6. Shore, Stephen H. and White, Joshua S. (2002). “External Habit Formation and the Home Bias
Puzzle”, Working Paper, Harvard University and Harvard Business School, November

7. Turrini, Alessandro and Ypersele, Tanguy Van (2001). “Traders, Courts and the Home Bias
Puzzle”, Working Paper, European Commission and Facultés Universitaires Notre-Dame de la
Paix, November

9. Bubbles and Crashes

1. Abreu, Dilip and Brunnermeier, Markus K. (2001). “Bubbles and Crashes”, Working Paper,
Princeton University, November

2. Bates, David S. (2001). “The Market for Crash Risk”, Working Paper, University of Iowa,
September

3. Giardina, Irene and Bouchaud, Jean-Philippe (2002). “Bubbles, Crashes and Intermittency in
Agent Based Market Models”, Working Paper, University of Rome I and Centre d'Etudes de
Saclay, September

4. Grauwe, Paul De and Grimaldi, Marianna (2004).“Bubbles and Crashes in a Behavioural

Finance Model”, Working Paper, Katholieke Universiteit Leuven, May

5. Gustman, Alan L. and Steinmeier, Thomas L. (2002). “Retirement and the Stock Market
Bubble”, Working Paper, Dartmouth College and Texas Tech University, December

6. Johansen, Anders (2004). “Origin of Crashes in 3 US Stock Markets: Shocks and Bubbles”,
Working Paper, Riso National Laboratory, February

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10. Excess Volatility Puzzle

1. Agyei-Ampomah, Samuel and Davies, J.R. (2002). “Excess Volatility and UK Investment
Trusts”, Working Paper, Aston University and University ofStrathclyde in Glasgow, June

2. Delong, J. Bradford and Becht, Marco (1992) “'Excess Volatility' and the German Stock
Market, 1876-1990”, Working Paper, University of California and European Corporate
Governance Institute, April

3. Marcus, Alan J. (1998). “Equilibrium Theory of Excess Volatility and Mean Reversion in
Stock Market Prices”, Working Paper, Boston College, September

4. Marsili, Matteo and Challet, Damien (2000). “Trading Behavior and Excess Volatility in Toy
Markets”, Working Paper, Istituto Nazionale Fisica della Materia (INFM) and University of
Oxford, May

5. Pontiff, Jeffrey (1998). “Excess Volatility and Closed-End Funds”, Working Paper, Boston
College, June

6. Rodriguez, Juan Carlos (2005). “Hedging Demand and Excess Volatility in Dynamic
Economies”, Working Paper, Tilburg University and CentER, January

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