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Wharton Executive Education: Modern Portfolio Theory


Wharton School of Business
Associate Professor of Finance


PhD, University of Chicago, 1972; MBA, University of Chicago, 1971; BA, University of Chicago, 1968

Career and Recent Professional Awards; Teaching Awards

Outstanding Professor Award, Evening School, 1990

Academic Positions Held

Wharton: 1973-present.

Jeffrey F. Jaffe and Anup Agrawal (1995), Does Section 166 Deter Insider Trading by Target Managers?00833Z), Journal of Financial Economics, 39 (Oct./Nov. 1995). 10.1016/0304405X(95)00833Z00833Z)

Abstract: This paper examines empirically whether the shortswing rule (Section 16b of the Securities Exchange Act) deters managers from trading before mergers. Since a merger forces the sale of the target's outstanding equity, insider purchases within six months before the merger cannot escape this rule. We examine the 1941–1961 period when no other insider trading laws were enforced. Consistent with 16b's deterrent effect, managers' purchases drop significantly before the announcement. Before completion, the decrease occurs only in the 1941–1955 period. Surprisingly, preannouncement sales do not decline, even though 16b cannot punish deferral of planned sales.

Jeffrey F. Jaffe, R. Westerfield, D. Keim (1989), Earnings Yields, Market Values and Stock Returns, Journal of Finance, 44.1 (March 1989).

Abstract: Earlier evidence concerning the relation between stock returns and the effects of size and earnings to price ratio (E/P) is not clearcut. This paper reexamines these two effects with (a) a substantially longer sample period, 19511986, (b) data that are reasonably free of survivor biases, (c) both portfolio and seemingly unrelated regression tests, and (d) an emphasis on the important differences between January and other months. Over the entire period, the earnings yield effect is significant in both January and the other eleven months. Conversely, the size effect is significantly negative only in January. We also find evidence of consistently high returns for firms of all sizes with negative earnings.

Jeffrey F. Jaffe, Donald B. Keim, R. Westerfield (1989), Earnings Yields, Market Values, and Stock Returns , Journal of Finance.

Past Courses


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 tradeoff between risk and return; 3) security market efficiency; 4) optimal capital structure, and 5) dividend policy decisions. During the fall semester there are honors sections of FNCE 100 offered. The seats in the honors sections are awarded through an application process. Please go to for additional information.


Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.


This course covers one of the most exciting yet fundamental areas in finance: derivative securities. In the modern financial architecture, financial derivatives can be the most challenging and exotic securities traded by institutional specialists, while at the same time, they can also be the basic securities commonly traded by retail investors such as S&P Index Options, Beyond trading, the basic ideas of financial derivatives serve as building blocks to understand a much broader class of financial problems, such as complex asset portfolos, strategic corporate decisions, and stages in venture capital investing. The golobal derivatives market is one of the most fastgrowing markets, with over $600 trillion notional value in total. It is important as ever to understand both the strategic opportunities offered by these derivative instruments and risks they imply. The main objective of this course is to help students gain the intuition and skills on (1) pricing and hedging of derivative securities, and (2) using them for investment and risk management. In terms of metholologies, we apply the nonarbitrage principle and the law of one price to dynamic models through three different approaches: the binomial tree model, the BlackScholesMerton option pricing model, and the simulationbased risk neutral pricing approach. We discuss a wide range ,of applications, including the use of derivatives in asset management, the valuation of corporate securities such as stocks and corporate bonds with embedded options, interest rate derivatives, credit derivatives, as well as crude oil derivatives. In addition to theoretical disucssions, we also emphasize practical considerations of implementing strategies using derivatives as tools, especially when noarbitrage conditions do not hold.

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