Module: Asset Pricing

Latest Module Specifications

Current Academic Year 2025 - 2026

Module Title	Asset Pricing
Module Code	FBA1019 (ITS: EF5156)
Faculty	DCU Business School	School	DCU Business School
NFQ level	9	Credit Rating	7.5

Description

EF 5156 Asset Pricing. Theory of Finance - Asset Pricing. This module presents a detailed introduction to the theoretical foundations of financial economics and the principal assumptions underlying the theory of financial asset pricing. It relates these foundations to the Neo- classical theory of finance and to successor theories - such as Behavioural Finance. On successful completion of the module, Learners will be able to appraise and discriminate between, the most prominent theories and approaches to asset pricing from the perspective of capital markets as well as that of individual financial securities. Learners will be able to apply the principles of asset pricing and reflect on their information and value for investors. Learners will be able to justify the role of the theory of finance, as well as to critique and question its’ contribution to the practice of asset pricing in the 21st Century. This module is delivered through a combination of weekly lectures and tutorials. Learners are expected to attend and to contribute to in-person sessions and to engage in on-line learning and research activities on a regular basis. In tutorials solutions to problem sets and expert articles will be discussed. Learners may also be required to work on a collaborative basis in groups for example in the case of continuous assessment.

Learning Outcomes

1. Discriminate between fundamental principles and concepts in financial theory and relate them to the discipline of asset pricing.
2. Appraise the relationship between risk and return in the context of financial asset pricing.
3. Analyse the international literature of financial theory in relation to the discipline of asset pricing.
4. Apply the theory of asset pricing to world of practice examples.
5. Critique the response of modern finance theory of asset pricing and practice, to the adverse effects of thermo-industrial capitalism associated with the Anthropocene.

*Type*	*Hours*	*Description*
Workload	Full time hours per semester
Lecture	36	Formal Lectures & Interactive Classroom
Independent Study	50	Directed readings & problem sets
Directed learning	45.5	Independent study - Exam Preparation
Directed learning	56	Continuous Assessment Assignment preparation
Total Workload: 187.5

Section Breakdown
CRN	10686	Part of Term	Semester 1
Coursework	0%	Examination Weight	0%
Grade Scale	40PASS	Pass Both Elements	Y
Resit Category	RC1	Best Mark	N
Module Co-ordinator	Claire Kearney	Module Teacher

Type	Description	% of total	Assessment Date
Assessment Breakdown
Assignment	Write an Individual Paper ( eg Factor Models) 25% and provide structured feedback to a colleague at the draft stage (10%)	35%	n/a
Group presentation	Make a presentation( Max5 ppts) on Asset Pricing Theory & Practice, and Record.	25%	n/a
Formal Examination	On Campus Exam	40%	End-of-Semester

Reassessment Requirement Type
Resit arrangements are explained by the following categories; RC1: A resit is available for both^* components of the module. RC2: No resit is available for a 100% coursework module. RC3: No resit is available for the coursework component where there is a coursework and summative examination element. ^* ‘Both’ is used in the context of the module having a coursework/summative examination split; where the module is 100% coursework, there will also be a resit of the assessment

Pre-requisite	None
Co-requisite	None
Compatibles	None
Incompatibles	None

All module information is indicative and subject to change. For further information,students are advised to refer to the University's Marks and Standards and Programme Specific Regulations at: http://www.dcu.ie/registry/examinations/index.shtml

Indicative Content and Learning Activities

Investor choice & decisions under uncertainty
Axioms on the preference relation; Utility and expected utility. The rational investor. Risk and risk aversion; Arrow- Pratt ARA, RRA and CRRA: Risk premium and the Certainty Equivalent; Stochastic dominance and mean-variance preferences. Portfolio Theory and limitations of Markowitz’ theory.

General Equilibrium
Fundamentals of General Equilibrium Theory and No Arbitrage. Arrow-Debreu securities and State prices: Complete and Incomplete markets. Fundamental theorem of asset pricing – relating the absence of arbitrage opportunities to the existence of a positive linear pricing function. Risk Neutral probabilities and risk neutral pricing.

Consumption-based Asset Pricing Theory
The stochastic discount factor (SDF) or pricing kernel.

Consumption-based other Factor Models
Capital Asset Pricing Model (CAPM) and associated CAPM models: Fama & French 3- and 5-factor; Carhart 4-factor models. Arbitrage Pricing Theory (APT). Review of empirical evidence.

Information and Asset Prices
Efficient Markets Hypothesis (EMH) and review of empirical evidence. Models of price; Random Walk and Martingale. Technical Analysis.

Behavioral Finance
Asset pricing, cognitive bias and the practice of investment. Prospect Theory.

Theory of Contingent Claims Pricing
Asset pricing and Contingent Claims: Black & Scholes Model; Black’s model. Pricing interest rate derivatives –Theory and practice.

Theory of Asset Pricing - Reflection
Financial markets, asset pricing, sustainability in the Anthropocene.

Indicative Reading List

Books:

Cochrane: 2009, Asset Pricing, 3, 1-5, Princeton,
Hull: 2011, Options, Futures and other Derivatives, 7,
Barucci & Fontana: 2017, Financial Markets Theory: Equilibrium, Efficiency and Information, 2nd, Springer,

Articles:

Fama & French: 2004, "The Capital Asset Pricing Model: Theory and Evidence", Journal of Economic Perspectives, 18(3), 2546, 521886
2022: Modern finance theory and practice and the Anthropocene., New Political Economy, 27(3), 521887, 1
"Three centuries of asset pricing": Journal of Banking and Finance, 23(12), 17456, 521888, 1, Shiller
American Economic Review: 104(6), 14681, 521889, 1, Brunnermeier et al, 2021
34(4): 21262,

Other Resources

None