Last updated: September 2022

Leadership/Management & Entrepreneurship

ALPHANOMICS: Date: 26 - 30 September 2022

Time: 9:00am - 5:00pm
THE SCIENCE OF ACTIVE INVESTING Program Fee: RM16,000 before SST
Prof. Eric C. So, Sloan Distinguished Professor of Financial Economics in the
Economics, Finance, and Accounting Area of MIT’s Sloan School of Management IN - PERSON

PROGRAM OVERVIEW
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 TARGET AUDIENCE
reflect some mispricing (i.e., noise) relative to fundamental values. The existence of mispricing Fund managers who wish to understand information
introduces a role for informational arbitrage, whereby some agents invest resources to become flows and market pricing dynamics as well as
informed about the mispricing, with hopes of profiting from it. We review recent evidence individuals interested in developing simple tools for
on this process and reflect on its implications for financial markets and the importance of investing and have a better understanding of how
firms’ financial statements. We also discuss how researchers might help lower information/ capital markets work. Class participants will include
arbitrage costs. Most of the topics covered in this course derive from financial economics MBA students.
(market efficiency, cognitive constraints, limits to arbitrage) and accounting-based research
(equity valuation, fundamental analysis, and the role of financial analysts).
PRE-READINGS
Topics include: Value investing, quantitative stock selection, behavioral finance, retail Participants must be ready to discuss assigned readings
investors, MEME stocks, investor sentiment, fraud detection, mis-reaction to news. which will be distributed ahead of time.

This is an introductory course and interdisciplinary in nature. Our goal is not only to describe SOFTWARE FOR ANALYSIS
the building blocks of active investing in the presence of noisy prices, but also to stimulate new For class work involving dataset analysis, you can
work in the area. As such, I expect it will be of primary interest to those in the intersections choose a software that you like. Most analysis can
between, and applications of, finance, accounting, and economics. Given our focus on (probably) be done on Excel but it is recommended that
return prediction and the role of information in arbitrage strategies, this course should be you use a programming-based language namely, one
of particular interest to those wishing to better understand the relation between information of the following: SAS, Stata, R.
flows and market pricing dynamics.

SOME KEY TAKEAWAYS

What is Alphanomics? What role does fundamental accounting
1 information play in markets with both noise traders and rational 9 What is the common link among successful value investors?
arbitrageurs?

How can we reconcile the assumption of no-arbitrage conditions What are alternative approaches to value investing and why is it
2 in classical asset pricing models with the practice of professional 10 important to use contextual information when determining firms’
arbitrageurs on Wall Street and elsewhere? quality and cheapness?

What do classical asset pricing models tell us about the role

How does active investing in practice differ from classical asset
3 pricing models? 11 of supply and demand in determining asset prices? By contrast,
what do we observe in practice?

Why is demand pressure important for active investors in terms

4 How do we use regression for forecasting? 12 of generating alpha?

What is “alpha” and how does it relate to fund performance?

5 Why is alpha important? 13 What is earnings management?

What role is played by researchers in discovering new potential What are the common links among firms that manipulate financial
6 sources of alpha? What do researchers contribute to the process
of active investing?
14 reports? How have researchers learned to profile problematic
firms?

7 What is assumed in models of information processing? 15 How are price reactions related to expected returns?

What role do cognitive biases play in the way that we react to Why is it important to continually identify and test potential
8 information signals? Are cognitive biases relevant in a world of
automated trading?
16 sources of deviations between fundamental values and market
prices?
PROGRAM OUTLINE

DAY SESSION TOPIC

1 Overview of Alphanomics

2 Active Investing

1 3 Learning from Data

4 Assignment Session: Shiller Model

1 All About Alpha

2 Behavioral Finance I

2 3 Behavioral Finance II

4 Assignment Session: Alpha Testing

1 Investor Sentiment

2 Value Investing I

3 3 Value Investing II

4 Assignment Session: Value Investing

1 Trading Costs

2 Earnings Game

4 3 Earnings Quality Screens

4 Assignment Session: Analyzing the Analyst

1 Mis-reaction to News

2 Conducting Event-Studies

5 3 Synthesis & Wrap-Up

4 Assignment Session: Final Project

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FACULTY PROFILE

Prof. Eric C. So
Sloan Distinguished Professor of Financial Economics in the
Economics, Finance, and Accounting Area of MIT’s Sloan School of Management

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.

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