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Economics of Financial Markets

Module Code: EC405C

Module Title: Economics of Financial Markets

  • ECTS Weighting: 10
  • Semester/Term Taught: Hilary Term
  • Contact Hours: 22 hours of lectures and 8 hours of tutorials
  • Module Personnel: Lecturer - Agustín Bénétrix

Learning Outcomes

On successful completion of this module, you will be able to:

  • Apply statistical techniques to judge the empirical performance of economic theories of financial markets

Module Learning Aims

This course is concerned with the pricing of financial assets, with the pricing and handling of risk, and with the place of the financial markets in the economy as a whole. For example, how might risk-averse investors choose an efficient portfolio of risky investments? Do stock market prices reflect all available information, or are they influenced by irrational waves of sentiment? This module assumes some previous knowledge of financial economics. For the most part the level of mathematics and statistics does not extend beyond SF Mathematical and Statistical Methods, module EC2040.

Module Content

Empirical issues in the economics of securities markets. The first part of the module will focus on statistical techniques and the predictability of asset returns. We will also look in details at the empirical performance of the CAPM and the APT, and discuss the modelling and testing of rational bubbles. The second part of the module will examine issues in international finance, covering such topics as covered and uncovered interest parities, the unbiasedness of the forward rate, and risk premia.

Recommended Reading List

Wooldridge, J.M., (2002), Introductory Econometrics: A Modern Approach (2nd ed.), (South-Western College Publishing); Cuthbertson, K. and Nitzsche, D. (2004), Quantitative Financial Economics (2nd ed.), (Chichester: Wiley); Elton, E.J. and Gruber, M.J. (2010), Modern Portfolio Theory and Investment Analysis (8th ed.), (Chichester: Wiley); Hull, J. (2012), Options, Futures and other Derivatives (8th ed.), (Prentice Hall).

Module Pre Requisite

EC3090 and EC3050

Assessment Details

20% of the module mark is based on a project. The remaining 80% of the module mark is based on the annual exam.

Module Website

http://agustinbenetrix.org/teac/economics-of-financial-markets-ec4051/, accessible directly or via Blackboard.