Finance-FinancialTimes, The Economist.

| January 30, 2017

Question
write paper using concepts from any of the following topics and its relation to a recent news item in Wall street Journal – see in particular the sections titled “Markets”and”Business”. You can also reference other high quality financial journalism sources such as the FinancialTimes, The Economist.

Portfolio Theory and Practice ,
Risk, Return, and the Historical Record
Capital Allocation to Risky Assets
Optimal Risky Portfolios
Index Models
The Capital Asset Pricing Model

(Thesuggestedlengthguidelineisonepagedoublespacedofyourwriting+howevermuchspaceyouneedtoprovideacopyofyourchosennewsitem).

In eachresponsepaper

(1) explainthetheoryandempiricalevidenceforthecourseconceptchosen(50%)and

(2) showhowitrelatestoarecentiteminthenews(50%).Pleaseprovideacopyofthenewsitem.

Examples:

A pharmaceutical company announces record earnings, but its stock declines. Ideas from the course can help us understand this event. You might spend a couple paragraphs describing how stock prices incorporate investor expectations. You might then describe how if investors expected

$50 earnings per share, but the actual amount is $45 earnings per share, then the stock price will fall-­‐-­‐even if $45 of earnings per share is a record. An outstanding answer might also include a

discussion of “post-­‐earnings announcement drift,” an empirical finding that illustrates the limits of efficient markets models.

Alternately, you can discuss news items that challenge ideas . For example, Capital Asset Pricing Model (CAPM) . While the CAPM is a useful benchmark, it has some well-­‐known empirical issues; You might choose a news item that challenges the CAPM, e.g. an article about the proliferation of “smart beta” funds. Please be specific about how the model is wrong.

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