This course covers investment decisions in the presence of noisy market prices. Our starting point is the observation that, with costly information, equilibrium market prices invariably reflect some mispricing (i.e., noise) relative to fundamental values. The existence of mispricing introduces a role for informational arbitrage, whereby some agents invest resources to become informed about the mispricing, with hopes of profiting from it. We review recent evidence on this process and reflect on its implications for financial markets and the importance of firms’ financial statements. We also discuss how researchers might help lower information/ arbitrage costs. Most of the topics covered in this course derive from financial economics (market efficiency, cognitive constraints, limits to arbitrage) and accounting-based research (equity valuation, fundamental analysis, and the role of financial analysts).
Topics include: Value investing, quantitative stock selection, behavioral finance, retail investors, MEME stocks, investor sentiment, fraud detection, mis-reaction to news.
This is an introductory course and interdisciplinary in nature. Our goal is not only to describe the building blocks of active investing in the presence of noisy prices, but also to stimulate new work in the area. As such, I expect it will be of primary interest to those in the intersections between, and applications of, finance, accounting, and economics. Given our focus on return prediction and the role of information in arbitrage strategies, this course should be of particular interest to those wishing to better understand the relation between information flows and market pricing dynamics.
Should the Covid situation worsen and infection rates rise, we may resort to conducting the programs online or via a hybrid mode. In the event that that happens, please rest assured that participants will be notified ahead of time.
Prof. Eric C. So is a financial economist and tenured full professor at MIT Sloan. Eric is the Sloan Distinguished Professor of Financial Economics in the Economics, Finance, and Accounting Area of MIT’s Sloan School of Management.
Eric also serves as the Co-Director for the Asset Management Initiative at MIT Sloan. His research interests include equity valuation, asset pricing, limits to arbitrage, and market microstructure with a focus on the forces and mechanisms that shape the information content of market prices.
Prior to joining Sloan, Eric received his PhD in Business Administration from Stanford University’s Graduate School of Business as well as a Masters in Economics from Cornell University. Currently, he serves as an academic economist for Full-Thaler Asset Management and as an Editor for Management Science. Prior to completing his graduate degrees, he worked as a research analyst at the Nasdaq Stock Market in the Economic Research department.
Sloan Distinguished Professor of Financial Economics in the Economics, Finance, and Accounting Area of MIT’s Sloan School of Management
Fund managers who wish to understand information flows and market pricing dynamics as well as individuals interested in developing simple tools for investing and have a better understanding of how capital markets work. Class participants will include MBA students.
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The ASB Iclif Executive Education Center’s open-enrollment courses are designed for busy professionals to upskill themselves with short, accelerated courses. Each course in our open enrollment program is self-contained and crafted to provide you with the essential knowledge, skills & tools to navigate in today’s complex world. Our course content is developed by drawing on the rigor of our founding parents – Bank Negara Malaysia and MIT Sloan – and combining it with fresh, innovative cases and approaches developed out of emerging trends in Asia and the developing world.