Finance Course Descriptions

The following are brief course descriptions as found in the University Registrar. More detailed information can be found in the Wharton Undergraduate Website, the MBA Resource Guide, or on our Course Syllabi Page.

FNCE 100
Corporate Finance
This course provides an introduction to the theory, the methods, and the concerns of corporate finance. The concepts developed in FNCE 100 form the foundation for all elective finance courses. The main topics include: 1) the time value of money and capital budgeting techniques; 2) uncertainty and the trade-off between risk and return; 3) security market efficiency; 4) optimal capital structure, and 5) dividend policy decisions.
Prerequisites: ECON 001, ECON 002 (ECON 010 ongoing from Class of 2010), and MATH 104.
Co-Requisites: ACCT 101, STAT 101.

FNCE 101
Monetary Economics and the Global Economy
This is an intermediate-level course in macroeconomics and the global economy, including topics in monetary and international economics. The goal is to provide a unified framework for understanding macroeconomic events and policy, which govern the global economic environment of business. The course analyzes the determinants and behavior of employment, production, demand and profits; inflation, interest rates, asset prices, and wages; exchange rates and international flows of goods and assets; including the interaction of the real economy with monetary policy and the financial system. The analysis is applied to current events, both in the US and abroad.
Prerequisites: ECON 001, ECON 002 (ECON 010 ongoing from Class of 2010), and MATH 104.
Students cannot receive credit for both FNCE 101 and ECON 102. Wharton students are required to take FNCE 101.

FNCE 103
Business Economics
This course covers introductory microeconomics and macroeconomics with particular attention given to global and long-run growth issues. The microeconomic portion introduces the discipline and fundamental tools of economics. It proceeds to study the workings of a price system and theories of consumer and firm decision-making. It further analyzes particular market structures characterized by perfect and imperfect competition, reviews the strengths and weaknesses of a market economy, and considers the government's role in correcting market failures and promoting competition. The macroeconomic portion studies the domestic and international forces that govern the determination of the aggregate level of economic activity, and pays particular attention to the determinants of long-run economic growth and stabilization policies used to dampen business cycles. The course concludes with global issues including the determinants of trade, trade policy, capital mobility, international financial instability, and international economic integration and the extent of globalization.
Prerequisites: FRESHMAN JOSEPH WHARTON HONORS SCHOLAR STUDENTS ONLY, Non-Honors students need permission.

FNCE 203
Advanced Corporate Finance
The objective of this course is to study the major decision-making areas of managerial finance and some selected topics in financial theory. The course reviews the theory and empirical evidence related to the investment and financing policies of the firm and attempts to develop decision-making ability in these areas. This course serves as a complement and supplement to FNCE 100. Some areas of financial management not covered in FNCE 100 are covered in FNCE 203. These may include leasing, mergers and acquisitions, corporate reorganizations, financial planning and working capital management, and some other selected topics. Other areas that are covered in FNCE 100 are covered more in depth and more rigorously in FNCE 203. These include investment decision making under uncertainty, cost of capital, capital structure, pricing of selected financial instruments and corporate liabilities, and dividend policy.
Prerequisites: FNCE 100, FNCE 101.

FNCE 205
Investment Management
This course is designed to acquaint the student with the concepts of portfolio analysis in the general area of institutional investment management. The course discusses principles for managing financial assets. These principles apply, for example, to managing corporate pension funds, bank-administered trust, and other institutional funds. Students will learn how to establish appropriate investment objectives, develop optimal portfolio strategies, estimate risk-return tradeoffs, and evaluate investment performance. Many of the latest quantitative approaches are discussed.
Prerequisites: FNCE 100, FNCE 101, STAT 101-102.

FNCE 206
Financial Derivatives
The purpose of this course is to provide the student with the necessary skills to value and to employ options, futures, and related financial contracts. In order to provide a useful treatment of these topics in an environment that is changing rather rapidly, it is necessary to stress the fundamentals and to explore the topics at a technical level. The topics that will be covered include the valuation of futures contracts on stock indices, on commodities and Treasury instruments; the valuation of options; empirical evidence; strategies with respect to these assets; dynamic asset allocation strategies, of which portfolio insurance is an example; swaps; and the use (and misuse) of derivatives in the context of corporate applications. One-third of the course will be devoted to futures, a third to options, and a third to their applications. Many of the applications will be sprinkled along with the coverage of futures and options.
Prerequisites: FNCE 100, FNCE 101, STAT 101-102. The prerequisites cannot be taken concurrently.

FNCE 207
Corporate Valuation
The focus of this course is on the valuation of companies. Topics discussed include discounted cash flow techniques and valuation using alternative valuation techniques such as price multiples. Emphasis is on developing the required information for valuation from financial statements and other information sources.
Prerequisites: FNCE 100, FNCE 101, and STAT 101-102 (Financial accounting, ACCT 201, recommended).

FNCE 208
International Corporate Finance
Analyzes financial problems corporations face that result from operating in an international environment. Major topics covered are corporate strategy and the decision to invest abroad, forecasting exchange rates, international portfolio diversification, managing exchange risk, taxation issues, cost of capital and financial structure in the multinational firm, and sources of financing.
Prerequisites: FNCE 100, FNCE 101.

FNCE 209
Real Estate Investment: Analysis and Financing
This course provides a broad introduction to real estate with a focus on financing issues. Basic project evaluation, financing strategies, and capital markets issues related to real estate are covered. No prior knowledge of the industry is required, but students are expected to rapidly acquire a working knowledge of real estate markets. Prerequisites: FNCE 100.

FNCE 219
International Financial Markets
This course focuses on international financial markets and exchange rates. Topics include pricing in the foreign currency and Eurocurrency markets, use of forward exchange for hedging, short-term returns and market efficiency in the international money markets, foreign currency options, international capital asset pricing, pricing of foreign currency bonds, currency swaps, Eurocurrency syndicated loans, foreign currency financing and exposure management.
Prerequisites: FNCE 100, FNCE 101, STAT 101.

FNCE 220
International Banking
This course focuses on international financial institutions and international banking activities. We will examine how current and historical events are reshaping the industry. We will focus on the basic analytics of managing a bank's exposure to liquidity, credit, market and country risk. In addition, we will consider how to evaluate and compare the risk exposures and performance of individual banks. Throughout the semester we will discuss public policy issues such as international debt crises and regulation.
Prerequisites: FNCE 100, FNCE 101.

FNCE 230
Urban Fiscal Policy
A detailed examination of the financing of local governments, suburbs, and center cities within the metropolitan economy.
Prerequisites: FNCE 101.

FNCE 235
Fixed Income Securities
FNCE 235 is a rigorous study of fixed income securities, including default-free bonds, floating rate notes, and corporate bonds. Closely related financial instruments such as forwards and futures on fixed income securities, bond options, and interest rate swaps are also examined. In addition to analyzing specific types of fixed income securities, there will be an examination of the tools used in bond portfolio management.
Prerequisites: FNCE 100, FNCE 101.

FNCE 238
Funding Investments
This course examines the available corporate securities that firms can use to finance investment. The course will focus on: (1) the design of these securities (Why do bonds have embedded options? What is the role of preferred stock?); (2) the issuing process for these securities (What do investment banks do? Is the underwriting process important for the cost of capital?); (3) the pricing of these securities (How are credit risk in bonds and loans priced?) The securities covered include corporate and junk bonds, bank loans, common and preferred equity, commercial paper, securitization, as well as some recent innovations. Other topics include: the role of embedded options in corporate bonds; the role of bank and loan covenants; the function of bond rating agencies; exchange offers; prepackaged bankruptcies; bankruptcy in Chapter 11; workouts; debtor-in-possession financing; and pricing credit risk. The course is designed to be complementary to Advanced Corporate Finance and Fixed Income Securities.
Prerequisites: FNCE 100, FNCE 101.

FNCE 239
Behavioral Finance
There is an abundance of evidence suggesting that the standard economic paradigm – rational agents in an efficient market – does not adequately describe behavior in financial markets. In this course, we will survey the evidence and use psychology to guide alternative theories of financial markets. Along the way, we will address the standard argument that smart, profit-seeking agents can correct any distortions caused by irrational investors. Further, we will examine more closely the preferences and trading decisions of individual investors. We will argue that their systematic biases can aggregate into observed market inefficiencies. The second half of the course extends the analysis to corporate decision making. We present the two themes of behavioral corporate finance: rational managers exploiting financial market inefficiencies and managerial decision-making biases. We then explore the evidence for both views in the context of capital structure, investment, dividend, and merger decisions.
Prerequisites: FNCE 100, FNCE 101. Recommended: FNCE 203.

FNCE 250
Venture Capital and the Finance of Innovation
This course covers the finance of technological innovation, with a focus on the valuation tools useful in the venture capital industry. These tools include the “venture capital method”, comparables analysis, discounted cash flow analysis, Monte Carlo simulation, contingent-claims analysis, decision trees, and real options. The primary audience for this course is finance majors interested in careers in venture capital or in R&D-intensive companies in health care or information technology.
Prerequisites: FNCE 100, FNCE 101.

FNCE 251
The Finance of Buyouts and Acquisitions
The focus of this course is on buying (or acquiring controlling stakes in) firms. The main topics to be covered are mergers and friendly acquisitions, hostile takeovers and buyouts. Using case studies, the course surveys the
drivers of success in the transactions. While issues regarding motive and strategy will be discussed, financial theory would be the main lens used to view these control acquiring transactions. The objective is two fold: (1)
Develop a concept and translate that idea into a proposal through deal design; and (2) analyze to form opinions about proposed deals. The course should be of interest to students interested in pursuing careers as private equity investors, advisors in investment banking and corporate managers that deal with these issues. This course will be demanding and assumes familiarity with valuation analysis.
Prerequisites: FNCE 100, FNCE 101.

FNCE 399
Supervised Study in Finance
Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.
Prerequisites: Senior standing, 3.4 grade point average, and permission of a Finance Department standing faculty member.

FNCE 601
Corporate Finance
This course serves as an introduction to business finance (corporate financial management and investments) for both non-majors and majors preparing for upper-level course work. The primary objective is to provide a framework, concepts, and tools for analyzing financial decisions based on fundamental principles of modern financial theory. The approach is rigorous and analytical. Topics covered include discounted cash flow techniques; corporate capital budgeting and valuation; investment decisions under uncertainty; capital asset pricing; and market efficiency. The course will also analyze corporate financial policy, including capital structure, cost of capital, dividend policy, and related issues.
Prerequisites: ACCT 620 or ACCT 621.
Co-Requisites: MGEC 621 and STAT 621 prerequisite or concurrent.

FNCE 602
Macroeconomics and the Global Economic Environment
This course is required of all students except those who, having prior training in macroeconomics, money and banking, and stabilization policy at an intermediate or advanced level, can obtain a waiver either by credentials or by passing an examination. The purpose of FNCE 602 is to train the student to think systematically about the current state of the economy and macroeconomic policy, and to be able to evaluate the economic environment within which business and financial decisions are made. The course emphasizes the use of economic theory to understand the workings of financial markets and the operation and impact of government policies. Specifically, the course studies the determinants of the level of national income, employment, investment, interest rates, the supply of money, inflation, exchange rates, and the formulation and operation of stabilization policies.

FNCE 717
Financial Derivatives
The purpose of this course is to provide the student with the necessary skills to value and to employ options, futures, and related financial contracts. In order to provide a useful treatment of these topics in an environment that is changing rather rapidly, it is necessary to stress the fundamentals and to explore the topics at a technical level. The topics that will be covered include the valuation of futures contracts on stock indices, on commodities and Treasury instruments; the valuation of options; empirical evidence; strategies with respect to these assets; dynamic asset allocation strategies, of which portfolio insurance is an example; swaps; and the use (and misuse) of derivatives in the context of corporate applications. One-third of the course will be devoted to futures, a third to options, and a third to their applications. Many of the applications will be sprinkled along with the coverage of futures and options.
Prerequisites: FNCE 601, FNCE 602, STAT 621 (these courses may not be taken concurrently).

FNCE 719
International Financial Markets
FNCE 719 is a course on international financial markets and exchange rates. Topics include pricing in the foreign currency and Eurocurrency markets, use of forward exchange for hedging, short-term returns and market efficiency in the international money markets, foreign currency options, international capital asset pricing, pricing of foreign currency bonds, currency swaps, Eurocurrency syndicated loans, foreign currency financing and exposure management.
Prerequisites: FNCE 601, FNCE 602 (FNCE 602 may be taken concurrently, but not FNCE 601).

FNCE 720
Investment Management
This course is designed to acquaint the student with the concepts of portfolio analysis in the general area of institutional investment management. The course discusses principles for managing financial assets. These principles apply, for example, to managing corporate pension funds, bank-administered trusts, and other institutional funds. Students will learn how to establish appropriate investment objectives, develop optimal portfolio strategies, estimate risk-return tradeoffs, and evaluate investment performance. Many of the latest quantitative approaches are discussed.
Prerequisites: FNCE 601, FNCE 602, STAT 621.

FNCE 721
Real Estate Investment: Analysis and Financing
Also listed under Real Estate as REAL 721. This course provides a broad introduction to real estate with a focus on financing issues. Basic project evaluation, financing strategies, and capital markets issues related to real estate are covered. No prior knowledge of the industry is required, but students are expected to rapidly acquire a working knowledge of real estate markets.
Prerequisite: FNCE 601.
Materials: Coursepack and a recommended text (varies by instructor).

FNCE 725
Fixed Income Securities
FNCE 725 is a rigorous study of fixed income securities, including default-free bonds, floating rate notes, and corporate bonds. Closely related financial instruments such as forwards and futures on fixed income securities, bond options, and interest rate swaps are also examined. In addition to analyzing specific types of fixed income securities, there will be an examination of the tools used in bond portfolio management.
Prerequisite: FNCE 601, FNCE 602.

FNCE 726
Advanced Corporate Finance
The objective of this course is to study the major decision-making areas of managerial finance and some selected topics in financial theory. The course reviews the theory and empirical evidence related to the investment and financing policies of the firm and attempts to develop decision-making ability in these areas. This course serves as a complement and supplement to FNCE 601. Some areas of financial management not covered in FNCE 601 are covered in FNCE 726. These may include leasing, mergers and acquisitions, corporate reorganizations, financial planning and working capital management, and some other selected topics. Other areas that are covered in FNCE 601 are covered more in depth and more rigorously in FNCE 726. These include investment decision making under uncertainty, cost of capital, capital structure, pricing of selected financial instruments and corporate liabilities, and dividend policy.
Prerequisite: FNCE 601, FNCE 602.

FNCE 728
Corporate Valuation
The focus of this course is on the valuation of companies. Topics discussed include discounted cash flow techniques and valuation using alternative valuation techniques such as price multiples. Emphasis is on developing the required information for valuation from financial statements and other information sources.
Prerequisites: Minimum of normal first-year courses in accounting, economics, statistics, and FNCE 601, FNCE 602 (further coursework in financial accounting such as ACCT 742 is very useful).

FNCE 730
Urban Fiscal Policy
The purpose of this course is to examine the financing of governments in the urban economy. Topics to be covered include the causes and consequences of the urban fiscal crisis, the design of optimal tax and spending policies for local governments, funding of public infrastructures and the workings of the municipal bond market, privatization of government services, and public financial systems for emerging economies. Applications include analyses of recent fiscal crises, local services and taxes as important determinants of real estate prices, the infrastructure crisis, financing and the provision of public education, and fiscal constitutions for new democracies using South Africa as an example.
Prerequisites: MGEC 621, FNCE 601.

FNCE 731
International Corporate Finance
This course analyzes financial problems corporations face that result from operating in an international environment. Major topics covered are corporate strategy and the decision to invest abroad, forecasting exchange rates, international portfolio diversification, managing exchange risk, taxation issues, cost of capital and financial structure in the multinational firm, and sources of financing.
Prerequisites: FNCE 601, FNCE 602.

FNCE 732
International Banking
This course focuses on international financial institutions and international banking activities. We will examine how current and historical events are reshaping the industry. We will focus on the basic analytics of managing a bank's exposure to liquidity, credit, market and country risk. In addition, we will consider how to evaluate and compare the risk exposures and performance of individual banks. Throughout the semester we will discuss public policy issues such as international debt crises and regulation.
Prerequisite: FNCE 601, FNCE 602.

FNCE 738
Funding Investments
This course examines the available corporate securities that firms can use to finance investment. The course will focus on: (1) the design of these securities (Why do bonds have embedded options? What is the role of preferred stock?); (2) the issuing process for these securities (What do investment banks do? Is the underwriting process important for the cost of capital?); (3) the pricing of these securities (How are credit risk in bonds and loans priced?) The securities covered include corporate and junk bonds, bank loans, common and preferred equity, commercial paper, securitization, as well as some recent innovations. Other topics include: the role of embedded options in corporate bonds; the role of bank and loan covenants; the function of bond rating agencies; exchange offers; prepackaged bankruptcies; bankruptcy in Chapter 11; workouts; debtor-in-possession financing; and pricing credit risk. The course is designed to be complementary to Advanced Corporate Finance and Fixed Income Securities.
Prerequisites: FNCE 601, FNCE 602.

FNCE 739
Behavioral Finance
There is an abundance of evidence suggesting that the standard economic paradigm – rational agents in an efficient market – does not adequately describe behavior in financial markets. In this course, we will survey the evidence and use psychology to guide alternative theories of financial markets. Along the way, we will address the standard argument that smart, profit-seeking agents can correct any distortions caused by irrational investors. Further, we will examine more closely the preferences and trading decisions of individual investors. We will argue that their systematic biases can aggregate into observed market inefficiencies. The second half of the course extends the analysis to corporate decision making. We present the two themes of behavioral corporate finance: rational managers exploiting financial market inefficiencies and managerial decision-making biases. We then explore the evidence for both views in the context of capital structure, investment, dividend, and merger decisions.
Prerequisites: FNCE 601, FNCE 602. Recommended: FNCE 726.

FNCE 750
Venture Capital and the Finance of Innovation
This course covers the finance of technological innovation, with a focus on the valuation tools useful in the venture capital industry. These tools include the "venture capital method," comparables analysis, discounted cash
flow analysis, Monte Carlo simulation, contingent-claims analysis, decision trees, and real options. The primary audience for this course is finance majors interested in careers in venture capital or in R&D-intensive companies
in health care or information technology.
Prerequisites: FNCE 601, FNCE 602.

FNCE 751
The Finance of Buyouts and Acquisitions
The focus of this course is on buying (or acquiring controlling stakes in) firms. The main topics to be covered are mergers and friendly acquisitions, hostile takeovers and buyouts. Using case studies, the course surveys the
drivers of success in the transactions. While issues regarding motive and strategy will be discussed, financial theory would be the main lens used to view these control acquiring transactions. The objective is two fold: (1)
Develop a concept and translate that idea into a proposal through deal design; and (2) analyze to form opinions about proposed deals. The course should be of interest to students interested in pursuing careers as private equity investors, advisors in investment banking and corporate managers that deal with these issues. This course will be demanding and assumes familiarity with valuation analysis.
Prerequisites: FNCE 601, FNCE 602.

FNCE 890
Advanced Study Project in Finance
Advanced Study Projects are specialized seminars that require individual or group projects. It usually requires a considerable amount of writing. An ASP seminar will be rigorous, meeting each week on a regular basis and including lectures, projects, and class discussion. Every semester a list of seminars offered will be published. Seminar in Investments and Financial Engineering are examples of some recent topics.
NOTE: A student may count only one of the Advanced Seminars or Independent Study courses toward the five courses required for the major. There are a few exceptions to this rule. Please see the department advisor for guidance.
Prerequisites: Indicated in the announcement of seminar topics before the Auction.

FNCE 892
Corporate Restructuring
The objective of this course is to familiarize students with financial, legal and strategic issues associated with corporate restructuring process. Main focus of the course will be on the restructuring of financially distressed firms. We will survey a variety of restructuring methods (out-of-court workouts, exchange offers, prepackaged bankruptcies, Chapter 11 bankruptcies, insolvency practices in other countries) available to troubled firms.

FNCE 899
Independent Study Project in Finance
Independent Study Projects require extensive independent work and a considerable amount of writing. A student wishing to do an individualized project in a particular area may do so with permission of a Finance Department standing faculty member willing to supervise it. A project proposal must be approved by the instructor.
NOTE: A student may count only one of the Advanced Seminars or Independent Study courses toward the five courses required for the major. There are a few exceptions to this rule. Please see the department advisor for guidance.

FNCE 911
Financial Economics
The objective of this course is to undertake a rigorous study of the theoretical foundations of modern financial economics. The course will cover the central themes of modern finance including individual investment decisions under uncertainty, stochastic dominance, mean variance theory, capital market equilibrium and asset valuation, arbitrage pricing theory, option pricing, and incomplete markets, and the potential application of these themes. Upon completion of this course, students should acquire a clear understanding of the major theoretical results concerning individuals' consumption and portfolio decisions under uncertainty and their implications for the valuation of securities.
Prerequisites: ECON 681 OR ECON 701, Matrix Algebra and Calculus.

FNCE 912
Financial Institutions
This course provides students with an overview of the basic contributions in the modern theory of corporate finance and financial institutions. The course is methodology oriented in that students are required to master necessary technical tools for each topic. The topics covered may include capital structure, distribution policy, financial intermediation, incomplete financial contracting, initial and seasoned public offerings, market for corporate control, product market corporate finance interactions, corporate reorganization and bankruptcy, financing in imperfect markets, security design under adverse selection and moral hazard, and some selected topics.
Prerequisites: ECON 898, STAT 510, or FNCE 911.

FNCE 921
Introduction to Empirical Methods in Finance
This course is an introduction to empirical methods commonly employed in finance. It provides the background for FNCE 934, Empirical Research in Finance. The course is organized around empirical papers with an emphasis on econometric methods. A heavy reliance will be placed on analysis of financial data.
Prerequisites: FNCE 911 (can be taken concurrently), STAT 510 and 511 or equivalent.

FNCE 922
Continuous-Time Financial Economics
This course covers some advanced material on the theory of financial markets developed over the last two decades. The emphasis is on dynamic asset pricing and consumption choices in a continuous time setting. The articles discussed include many classical papers in the field as well as some of the most recent developments. The lectures will emphasize the concepts and technical tools needed to understand the articles.
Prerequisites: FNCE 911, ECON 701, ECON 703. Graduate level knowledge of analysis and statistics is highly recommended but not required.

FNCE 923
Financial Economics Under Imperfect Information
General equilibrium and rational expectations. Foundations of the theory of information. Learning from prices in rational expectations equilibrium models. Moral hazard, adverse selection and signalling. Bidding theories.
Prerequisites: FNCE 922.

FNCE 924
Intertemporal Macroeconomics and Finance
This is a doctoral level course on macroeconomics, with special emphasis on intertemporal choice under uncertainty and topics related to finance. Topics include: optimal consumption and saving, the stochastic growth model, q-theory of investment, (incomplete) risk sharing and asset pricing. The course will cover and apply techniques, including dynamic programming, to solve dynamic optimization problems under uncertainty. Numerical solution methods are also discussed.
Prerequisites: FNCE 911.

FNCE 925
Topics in Asset Pricing
This course will analyze several aspects of liquidity. Mostly, it will concentrate on liquidity as an asset's property of being traded quickly and at low cost, but the notion of availability of cash will also be studied. Particular attention will be devoted to exogenous transaction costs, asymmetric information and search frictions as determinants of asset liquidity and, consequently, price. We will also look at liquidity risk, institutional features arising as response to liquidity problems, and financing constraints. The course will concentrate on theoretical models, but the empirical literature will be referred to throughout.

FNCE 932
Corporate Finance
Advanced theory and empirical investigations: financial decisions of the firm, dividends, capital structure, mergers and takeovers.
Prerequisites: FNCE 911, FNCE 921, or permission of instructor.

FNCE 933
International Finance
This course provides an understanding of current academic research in the areas of international finance and international macroeconomics. Students will learn the tools for conducting research in this field.
Prerequisites: FNCE 911, FNCE 922 (recommended).

FNCE 934
Empirical Research in Finance
Rigorous treatment of current empirical research in finance. Applications of multivariate and nonlinear methods. Intertemporal and multifactor pricing models. Conditional distributions. Temporal dependence in asset returns.
Prerequisites: FNCE 911, 921.

FNCE 937
Applied Quantitative Methods in Finance
FNCE 937 uses numerical tools to address a variety of issues in finance. The course has two main objectives. First, it seeks to provide the students with useful quantitative tools to understand and produce frontier research in finance. Second, it applies these tools to advanced topics in both corporate finance and asset pricing. A special emphasis is placed on new and recent research.
Prerequisites: FNCE 911.

FNCE 939
Behavioral Finance
There is an abundance of evidence suggesting that the standard economic paradigm – rational agents in an efficient market – does not adequately describe behavior in financial markets. In this course, we will survey the evidence and use psychology to guide alternative theories of financial markets with an eye towards identifying frontiers and opportunities for new research. Along the way, we will address the standard argument that arbitrage will eliminate any distortions caused by irrational investors. Further, we will examine more closely the preferences and trading decisions of individual investors. We will argue that their systematic biases can aggregate into observed market inefficiencies. The second half of the course extends the analysis to corporate decision making. We present the two themes of behavioral corporate finance: rational managers exploiting financial market inefficiencies and managerial decision-making biases. We then explore the evidence for both views in the context of capital structure, investment, dividend, and merger decisions. We emphasize the importance of differentiating the behavioral approach from information models and other more traditional methodology.
Prerequisites: FNCE 911.