Michael Gibbons

Education

PhD, University of Chicago, 1980; MS, University of Chicago, 1979; BS, Butler University, 1975

Recent Consulting

Consulting ranges from expert testimony (involving valuation of assets) to issues which arise in professional investment management

Career and Recent Professional Awards; Teaching Awards

Batterymarch Fellow, 198384; Graduate Division Excellence in Teaching Award, 1996, 2001

Academic Positions Held

Wharton: 1989present (Deputy Dean, 2007present; Chairperson, Finance Department,19942006; named I.W. Burnham II Professor of Investment Banking, 1989). Previous appointments: Stanford University; University of Chicago. Visiting appointment: University of Chicago

Michael R. Gibbons (1993), A Test of the Cox, Ingersoll, and Ross Model of the Term Structure, Review of Financial Studies, 6 (1993).

Abstract: We test the theory of the term structure of indexedbond prices due to Cox, Ingersoll, and Ross (CIR). The econometric method uses Hansen's generalized method of moments and exploits the probability distribution of the singlestate variable in CIR's model, thus avoiding the use of aggregate consumption data. It enables us to estimate a continuoustime model based on discretely sampled data. The tests indicate that CIR's model for index bonds performs reasonably well when confronted with shortterm Treasurybill returns. The estimates indicate that term premiums are positive and that yield curves can take several shapes. However, the fitted model does poorly in explaining the serial correlation in real Treasurybill returns.

Michael R. Gibbons (1989), Empirical Tests of the ConsumptionOriented CAPM, Journal of Finance, 44 (1989).

Abstract: The empirical implications of the consumptionoriented capital asset pricing model (CCAPM) are examined, and its performance is compared with a model based on the market portfolio. The CCAPM is estimated after adjusting for measurement problems associated with reported consumption data. The CCAPM is tested using betas based on both consumption and the portfolio having the maximum correlation with consumption. As predicted by the CCAPM, the market price of risk is significantly positive, and the estimate of the real interest rate is close to zero. The performances of the traditional CAPM and the CCAPM are about the same.

Michael R. Gibbons (1989), A Test of the Efficiency of a Given Portfolio , Econometrics, 57 (1989).

Past Courses

FNCE205 INVESTMENT MANAGEMENT

This course studies the concepts and evidence relevant to the management of investment portfolios. Topics include diversification, asset allocation, portfolio optimization, factor models, the relation between risk and return, trading, passive (e.g., indexfund) and active (e.g., hedgefund, longshort) strategies, mutual funds, performance evaluation, longhorizon investing and simulation. The course deals very little with individual security valuation and discretionary investing (i.e., "equity research" or "stock picking").

FNCE235 FIXED INCOME SECURITIES

This course covers fixed income securities (including fixed income derivatives) and provides an introduction to the markets in which they are traded, as well as to the tools that are used to value these securities and to assess and manage their risk. Quantitative models play a key role in the valuation and risk management of these securities. As a result, although every effort will be made to introduce the various pricing models and techniques as intuitively as possible and the technical requirements are limited to basic calculus and statistics, the class is by its nature quantitative and will require a steady amount of work. In addition, some computer proficiency will be required for the assignments, although familiarity with a spreadsheet program (such as Microsoft Excel) will suffice.

FNCE399 INDEPENDENT STUDY

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

FNCE717 FINANCIAL DERIVATIVES

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.

FNCE720 INVESTMENT MANAGEMENT

This course studies the concepts and evidence relevant to the management of investment portfolios. Topics include diversification, asset allocation, portfolio optimization, factor models, the relation between risk and return, trading, passive (e.g., indexfund) and active (e.g., hedgefund, longshort) strategies, mutual funds, perfermance evaluation, longhorizon investing and simulation. The course deals very little with individual security valuation and discretionary investing (i.e., "equity research" or "stock picking").

FNCE725 FIXED INCOME SECURITIES

This course covers fixed income securities (including fixed income derivatives) and provides an introduction to the markets in which they are traded, as well as to the tools that are used to value these securities and to assess and manage their risk. Quantitative models play a key role in the valuation and risk management of these securities. As a result, although every effort will be made to introduce the various pricing models and techniques as intuitively as possible and the technical requirements are limited to basic calculus and statistics, the class is by its nature quantitative and will require a steady amount of work. In addition, some computer proficiency will be required for the assignments, although familiarity with a spreadsheet program (such as Microsoft Excel) will suffice.

FNCE899 INDEPENDENT STUDY

Independent Study Projects require extensive independent work and a considerable amount of writing. ISP in Finance are intended to give students the opportunity to study a particular topic in Finance in greater depth than is covered in the curriculum. The application for ISP's should outline a plan of study that requires at least as much work as a typical course in the Finance Department that meets twice a week. At a minimum, we need a description of the methodology you intend to employ, a bibliography and description of the data that you will use as well as a list of interim deliverables and dates to ensure that you complete the project within the semester. Applications for FNCE 899 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. You must submit your Finance ISP request using the Finance Department's ISP form located at https://fnce.wharton.upenn.edu under the Course ISP section

Knowledge @ Wharton

Surfing Time for Wharton’s SummertimeSavvy Professors, Knowledge @ Wharton 07/04/2001