Asset Pricing Fundamentals from Coursera

The course Asset Pricing I will provide students with the main theoretical and analytical tools to study and understand the economics of financial markets and portfolio choices. After learning the different structure that financial markets can take and the key functions that these perform, learners will analyze how financial markets affect saving and investment decisions in an economy with no uncertainty.

Then, learners will be introduced to expected utility theory, which will provide them with the key analytical tools to study choices under uncertainty. These tools will then be used to model and analyze portfolio choices: first, learners will study the so-called canonical portfolio problem, that is, the problem of an investor who has to choose how to allocate their wealth between a safe and a risky asset; then, they will study portfolio choices that involve multiple risky assets.

The analysis of portfolio choices will allow learners to characterize and determine investors’ optimal demand for risky assets, which will lay the foundation for the analysis of the Capital Asset Pricing Model, a milestone for asset pricing and financial economics.

The analysis of the CAPM will finally teach learners how to characterize equilibrium returns and asset prices in financial markets, also understanding the key forces that govern these key variables.

What's inside

Syllabus

Week 1 - Functions of financial markets

By the end of this week, you will learn the various structures financial markets can adopt and comprehend their primary functions. You'll also be able to assess how the establishment of financial markets influences households' choices regarding saving and borrowing, along with companies' decisions regarding investment, all within an economy devoid of uncertainty.

Week 2 - Choice under uncertainty

This week you will learn the theoretical principles that underlie individual choices under uncertainty, that is, in the presence of risk, in light of expected utility theory. Additionally, you will examine how to characterize agents' attitudes towards risk and the primary criteria for comparing risky prospects. These criteria include first- and second-order stochastic dominance, as well as the mean-variance criterion.

Week 3 - Contingent claim markets

By the end of this week you will understand how to analyze contingent claim markets and the risk neutral evaluation.

Week 4 - Canonical portfolio problem

By the end of this week you will learn the principles underlying investors' portfolio choice and to analyze, in particular, how stock market participation depends on individual preferences and stocks' fundamentals (expected return and riskiness).

Week 5 - Mean-Variance analysis

By the end of this week you will be able to identify the set of efficient portfolios in an economy with many risky assets and to analyze, in this economy, the portfolio choices of investors with mean-variance preferences, so as to characterize stocks' aggregate demand.

Week 6 - The Capital Asset Pricing Model (CAPM)

By the end of this week, you will learn the concept of equilibrium in financial markets. You'll apply this understanding to an economy featuring numerous risky assets and a riskless asset, all within a framework of risk-averse investors with mean-variance preferences. Additionally, you'll gain the ability to calculate equilibrium prices and expected excess returns. Furthermore, you'll recognize that these values are contingent upon the covariance risk of assets, which is quantified by asset betas.

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Strong fit for intermediate learners and above as it builds on Expected Utility Theory studied in previous econ courses

Taught by Lorenzo Pandolfi, who is recognized for work in economics

Suitable for those in finance or looking to enter finance

Career center

Learners who complete Asset Pricing Fundamentals will develop knowledge and skills that may be useful to these careers:

Quantitative Analyst

The Quantitative Analyst is responsible for using mathematical and statistical models to analyze financial data. A course like this would be helpful because it provides a strong foundation in the theory and practice of financial modeling. This knowledge would help the Quantitative Analyst to develop and implement models to support investment decisions.

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Actuary

The Actuary is responsible for using mathematical and statistical methods to assess and manage financial risk. A course like this would be helpful because it provides a strong foundation in the theory and practice of risk management. This knowledge would help the Actuary to develop and implement models to assess and manage financial risk.

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Hedge Fund Manager

The Hedge Fund Manager is responsible for managing a hedge fund, which is a type of investment fund that uses sophisticated investment strategies to generate high returns. A course like this would be helpful because it provides a strong foundation in the theory and practice of investment management. This knowledge would help the Hedge Fund Manager to develop and implement investment strategies that generate high returns.

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Insurance Analyst

The Insurance Analyst is responsible for analyzing and evaluating insurance risks. A course like this would be helpful because it provides a strong foundation in the theory and practice of insurance risk management. This knowledge would help the Insurance Analyst to assess and manage insurance risk.

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Portfolio Manager

The Portfolio Manager is responsible for managing the investments of individuals, families, or institutions. A course like this would be helpful because it provides a foundation in the theory and practice of investment management. This knowledge would help the Portfolio Manager to make informed decisions about how to allocate assets and manage risk.

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Risk Manager

The Risk Manager is responsible for identifying, assessing, and managing risks for an organization. A course like this would be helpful because it provides a comprehensive overview of the risk management process. This knowledge would help the Risk Manager to develop and implement effective risk management strategies.

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Financial Economist

The Financial Economist is responsible for using economic theory and data to analyze financial markets and make investment decisions. A course like this would be helpful because it provides a strong foundation in the theory and practice of financial economics. This knowledge would help the Financial Economist to develop and implement investment strategies.

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Data Scientist

The Data Scientist is responsible for using data to solve business problems. A course like this would be helpful because it provides a strong foundation in the theory and practice of data science. This knowledge would help the Data Scientist to develop and implement data-driven solutions to financial problems.

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Financial Risk Analyst

The Financial Risk Analyst is responsible for implementing and maintaining risk management policies and procedures for a financial institution. A course like this would be useful because it teaches how to assess the risk and return of financial assets. This knowledge would help the Financial Risk Analyst to recommend appropriate strategies for managing financial risk.

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Financial Planner

The Financial Planner is responsible for providing financial advice to individuals and families. A course like this would be useful because it provides a broad overview of the financial planning process. This knowledge would help the Financial Planner to develop and implement comprehensive financial plans for their clients.

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Investment Banker

The Investment Banker is responsible for advising companies on mergers and acquisitions, capital raising, and other financial transactions. A course like this would be helpful because it provides a broad overview of the financial markets and the investment banking industry. This knowledge would help the Investment Banker to develop and execute financial transactions.

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Private Equity Associate

The Private Equity Associate is responsible for identifying and evaluating potential investment opportunities for a private equity firm. A course like this would be helpful because it provides a broad overview of the private equity industry and the investment process. This knowledge would help the Private Equity Associate to identify and evaluate investment opportunities.

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Auditor

The Auditor is responsible for examining and evaluating the financial records of an organization. A course like this would be useful because it provides a strong foundation in the theory and practice of accounting and auditing. This knowledge would help the Auditor to identify and assess financial risks.

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Compliance Officer

The Compliance Officer is responsible for ensuring that an organization complies with all applicable laws and regulations. A course like this would be helpful because it provides a broad overview of the regulatory environment for financial institutions. This knowledge would help the Compliance Officer to develop and implement effective compliance programs.

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Investment Analyst

The Investment Analyst is responsible for researching and evaluating potential investments. A course like this may be useful because it provides a framework for analyzing financial markets and making investment decisions. This knowledge would help the Investment Analyst to identify and recommend attractive investment opportunities.

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Asset Pricing Fundamentals

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