Skip to main content

Professional Linkage Seminar (394-LK-23)

Topic

Inefficient Markets

Instructors

Ryan M. Garino
Office Hours: By Appointment
Ryan Garino is a former Partner and Head of Global Credit at Citadel Investment Group, where he worked for 15 years. In this role, he oversaw the firm’s trading efforts in convertible bonds, corporate debt and credit default swaps. He was also selected to serve on Citadel’s Portfolio Committee for seven years, helping to determine the risk allocation and portfolio sizing decisions of the firm’s asset management business. Since leaving Citadel, Ryan has lectured at Northwestern, creating a course entitled Inefficient Markets that combines academic and practitioner perspectives on the root causes of market inefficiencies. He has also lectured at Kellogg courses including the Asset Management Practicum, Derivatives, Corporate Finance and Hedge Funds and Private Equity. Ryan graduated summa cum laude from Northwestern with a BA/MA in Mathematics and Economics. He also holds an MBA, with honors, from the University of Chicago.

Meeting Info

Kresge Centennial Hall 2-319: Tues, Thurs 9:30AM - 10:50AM

Overview of class

*INFORMATION IS SUBJECT TO CHANGE*

The instructor of this course is Ryan Garino.

The goal of this course is to expose driven, inquisitive students to real-life examples of inefficiency in the public financial markets and build up a framework for thinking about the drivers of these inefficiencies. Students will explore how hedge funds evaluate these opportunities and capitalize on them to drive returns for their investors. The course will help students understand the concept of arbitrage and the limits of arbitrage opportunities.

There will be a particular focus on asking why outsized returns exist in specific cases of market inefficiency. Students will be exposed to a myriad of potential root causes including counterparty risk, liquidity risk, and investor segmentation. Through the course, students will learn how to price and evaluate a wide variety of financial instruments including depository receipts, credit default swaps, convertible bonds, and distressed debt.

The aim of the course is to give students several examples of bona fide market inefficiency and give them the tools to assess (and potentially capitalize on) future market opportunities in real-time. Will we talk about more recent events like WSB/Gamestop and not-so-recent events like the implosion of LTCM.

Some Interesting Questions We Will Explore in This Class:

  • Is the Efficient Markets Hypothesis still relevant today?

  • How prevalent are instances of inefficiency in financial markets?

  • What are the most common sources of financial market inefficiency?

  • Do bona fide arbitrage opportunities still exist today?

  • What role does behavioral economics play in market inefficiency?

  • Do hedge funds really have edge/alpha?

  • What markets tend to exhibit instances of inefficiency more than others?

Registration Requirements

This course will be fast-paced and students are expected to have significant background in economics, statistics and finance. Yes, there will be math! But, no, you won't be expected to derive Black-Scholes.

Prerequisite: BUS_INST 304: Corporate Finance (Equivalents to BUS_INST 304 include: ECON 360-1; IEMS 326; KELLG FE 310)

Evaluation Method

  1. Class Participation (10% weighting). It is important that you read the background materials before class so that we can cover material in as much depth as possible. I have intentionally made the readings focused so they should be very manageable - it is my expectation that every student will complete the readings before class each week. Classroom comments and questions should demonstrate knowledge of the topic being discussed and facilitate learning for the entire class. High-quality comments, questions, and contributions will improve everyone's experience. While I encourage everyone to do their best to attend, if you cannot due to illness please make an effort to set up a 1x1 Zoom with me -- your lack of synchronous attendance will not be counted against you.

  2. Problem Sets/Cases (20%). There will be 4 problem sets/cases assigned on course topics. These problem sets will generally be numerical examples of potential hedge fund investments. I have no issue with students working together on these problem sets, but each student will be responsible for understanding the material and will turn in an individual set of answers.

  3. Paper (20%) Students will research an original paper on a topic relevant to financial market inefficiency. Sample topics include an in-depth look at a specific arbitrage opportunity and the reason it existed, the current opportunity set within financial markets, an exploration of a specific source of market inefficiency over time, or structural trends within the hedge fund industry. Papers are expected to be six to eight pages (double-spaced, additional pages may be added for charts and exhibits).

  4. Quizzes (30%) There will be 3 quizzes covering material from class notes, discussions, problem sets, and readings.

  5. Final Exam (20%)

Class Materials (Required)

  • Pedersen, Lasse Heje. Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined. Princeton University Press, 2015. (ISBN: 978-0691196091). Approximate Price: $55 at NU Bookstore; $27 on Amazon.

  • Study.net course pack. Approximate Price: $0.20

  • Required Readings: Various academic papers, sell-side research and Wall Street Journal/other articles

Class Notes

There are no wait lists for BUS_INST courses. If the class closes before your registration time, please check back.

For more information, please view sample syllabus: https://businessinstitutions.northwestern.edu/courses/course-descriptions/index.html

Class Attributes

Attendance at 1st class mandatory

Enrollment Requirements

Enrollment Requirements: This course is open to students who have completed BUS_INST 304-0 or equivalent.