The course assumes good knowledge of basic economic concepts such as: prices, returns, demand, and supply. Also, one needs to be familiar with the mathematical concept of maximization/minimization of a function. Some knowledge of statistics is required too. In particular, you will need to know about mean, variance, covariance, and correlation of random variables. Also, we will refer extensively to the normal probability distribution. All the necessary statistical concepts will be reviewed during the practical sessions.
Institutions and Economic Models of Financial Markets
Description / Program
The course is an introduction to the institutions and economic functioning of financial markets. First, the course provides a general description of the basic features of these markets: the asset classes, the trading mechanisms, and the main actors. Then, it deals with individual portfolio choice. Next, individual portfolios are aggregated to derive the main concepts of equilibrium in equity markets (CAPM, APT). These concepts are used to introduce the notion of market efficiency. The empirical evidence on market efficiency is discussed and analyzed from the point of view of classical and alternative theories of capital markets, such as Behavioral Finance. The course then examines the tools that financial analysts use to make investment decisions (equity analysis). Using these notions, the students will be introduced to the concept of active portfolio management. As a final chapter, the course deals with fixed income securities (prices, yields, the term structure, and bond portfolios management).
Learning Method / Style of Lessons
Lectures, Problem Sets and Case Studies
Compliant with COVID-19 guidelines
Written mid-term exam, written final exam at the end of the course and a case study to be solved and presented in class. The mid-term exam and the final exam will each represent 45% of the final grade, the case study is 10% of the final grade. Both exams are closed-book. You will be allowed to bring with you a sheet with
formulas. You have the option to only do the final exam (with a longer set of questions), but it is strongly encouraged to take the mid-term.
The textbook for the course is: Bodie Z., Kane A., and Marcus A.J., “Investments”, 7th, or 8th, 9th, 10th, or 11th edition, McGraw Hill. The relevant chapters will be announced in class and on the course website. Occasional readings will be posted on the course website.
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