COURSE on Efficiently Inefficient: How Smart Money Invests and Market Prices are Determined
I have used early versions of the book to teach MBA students at NYU Stern School of Business and Masters students at Copenhagen Business School. Already before its publication, the book is also being introduced to students at UCLA, Harvard University, the Wharton School of the University of Pennsylvania, UC Berkeley, London Business School, HEC Paris, and Stockholm School of Economics in courses such as Investments, Hedge Fund Strategies, Asset Management, Alternative Investments, Behavioral Finance, and Institutional Finance. Professors who would like to use the book in their course are welcome to contact me for more information and course material.
FEEDBACK FROM PROFESSORS:
"The book fills a huge void and was a big success in my MBA class at UCLA Anderson School of Management. This impressive work blends a coherent conceptual framework that professors seek for their classes with a hedge fund manager's insight and practical knowledge that students crave." -- Mikhail Chernov
"This valuable book offers a unique combination of practical insights, cutting-edge research, and institutional facts. Lasse Pedersen is a brilliant scholar and he’s written a brilliant book. I'm delighted to find a book that is both cutting edge and accessible to advanced undergraduates. I plan to use it again next year at Harvard!" -- Owen Lamont
The course describes some of the main trading strategies used by active traders and provides a methodology to analyze them. The course covers individual equity markets (discretionary equity investing, short selling, quantitative equity strategies), tactical asset allocation across equity indices, currencies, fixed-income, and commodities (global macro investing, managed futures strategies), and relative-value arbitrage strategies (fixed income arbitrage, convertible bond arbitrage, event driven investments). In class and through exercises, the trading strategies are illustrated using real data and students learn to use "backtesting" to evaluate a strategy. The course also covers issues related to how trading works, performance measurement, transaction costs and liquidity risk, optimal trading, margin requirements, risk management, and portfolio construction.
There are exercises for each of the main topics. To truly understand the material in the course, students are encouraged to solve these exercises. To facilitate this learning, students taking my course form 11 groups in the first class, and each group presents its solution to a set of exercises (in the class following the class where the exercises were assigned). The sample lecture plan has an example of exercises used in class (this is an ambitious number of exercises, many classes use a small fraction of these). The exercises are available in the free compendium.
SAMPLE LECTURE PLAN:
Each lecture is 3 hours. This is a tight schedule, some courses spend more time or cover less.
TABLE OF CONTENTS of the book Efficiently Inefficient
The Main Themes in Three Simple Tables
Part I Active Investment
Chapter 1 Understanding Hedge Funds and Other Smart Money
Chapter 2 Evaluating Trading Strategies: Performance Measures
Chapter 3 Finding and Backtesting Strategies: Profiting in Efficiently Inefficient Markets
Chapter 4 Portfolio Construction and Risk Management
Chapter 5 Trading and Financing a Strategy: Market and Funding Liquidity
Part II Equity Strategies
Chapter 6 Introduction to Equity Valuation and Investing
Chapter 7 Discretionary Equity Investing
Interview with Lee S. Ainslie III of Maverick Capital
Chapter 8 Dedicated Short Bias
Interview with James Chanos of Kynikos Associates
Chapter 9 Quantitative Equity Investing
Interview with Cliff Asness of AQR Capital Management
Part III Asset Allocation and Macro Strategies
Chapter 10 Introduction to Asset Allocation: The Returns to the Major Asset Classes
Chapter 11 Global Macro Investing
Interview with George Soros of Soros Fund Management
Chapter 12 Managed Futures: Trend-Following Investing
Interview with David Harding of Winton Capital Management
Part IV Arbitrage Strategies
Chapter 13 Introduction to Arbitrage Pricing and Trading
Chapter 14 Fixed-Income Arbitrage
Interview with Nobel Laureate Myron Scholes
Chapter 15 Convertible Bond Arbitrage
Interview with Ken Griffin of Citadel
Chapter 16 Event-Driven Investments
Interview with John A. Paulson of Paulson & Co.
BUY THE BOOK
The book is published by Princeton University Press and should be broadly available in late May, 2015. It is now shipping from these sites among many others: