This textbook takes the reader from the level of microeconomics
principles through to modern asset pricing theory. Yvan Lengwiler
elegantly links together issues that have in the past been the
territory of general economic theorists on the one hand, and
financial economists on the other.
In a sequence of carefully explained steps, the reader learns
how the first welfare theorem is used in asset pricing theory. The
book then moves on to explore Radner economies and von
Neumann-Morgenstern decision theory, and this section culminates in
Wilson's mutuality principle and the consumption-based CAPM. This
is then put into a dynamic setting, and term structure models are
introduced. The empirical shortcomings of the standard asset
pricing models are extensively discussed, as is research from the
last twenty years aimed at bringing theory in line with reality.
The reader is brought up to date on the latest areas of concern,
such as habit formation, the consequences of heterogeneity,
demographic effects, changing tax regimes, market frictions, and
the implications of prospect theory for asset pricing.
Aimed at masters or Ph.D. students specializing in financial
economics, the book can also be used as a supplementary text for
students of macroeconomics at this advanced level and will be of
interest to finance professionals with a background in economics
and mathematics. It includes problems (with solutions), and an
accompanying website provides supporting material for
Subjects: Economics, Finance
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