Outline of two courses: Financial Economics/Investments

Transcription

1 Outline of two courses: Financial Economics/Investments Winter 2010 September 17, 2009

2 Part I Which one to pick?

3 two finance courses minimal overlap different objectives

4 two finance courses minimal overlap different objectives Investments Financial Economics aim theory behind practice of financial investment cutting edge research in career objective business (public service) PhD / IMF/ Central Banks "literacy" learn to read WSJ/FT, policy papers learn to read/write academic papers maths decent, but undergrad level high level material standard text book + articles from financial press academic papers background in finance? not neccessary not necessary

5 Description Topics Part II Investments Webpage Materials

6 Description financial theory and quantitative tools necessary for understanding how stock, bond, and option prices are determined how financial assets are used for investment decisions Rather than details of current practice, rigorous and critical view to the process of investing lasting conceptual framework to analyze investment decisions By the end of the course you should be able to invest your own money soundly understand financial press provide investment advice to all your friends and family work for the CFO of a company Description Topics Webpage Materials

7 Topics 1. modeling the relation between risk and return 2. optimal portfolio selection based on mean variance analysis 3. asset pricing models 4. money management 5. practical asset allocation 6. derivatives 7. financial crisis 2007/ and many more... Description Topics Webpage Materials

8 Description Topics Webpage Knowledge of the first year Microeconomics and Econometrics sequences Materials

9 Webpage Description Topics Webpage on the courses section of my webpage Webpage Materials

10 Description Final exam four graded Problem sets in groupwork (four best out of six) case-write up Topics Webpage Materials

11 Description Final exam four graded Problem sets in groupwork (four best out of six) case-write up Topics Webpage Materials Weights Problem Sets 24% DFA Case Write-up 6% Final 70%

12 Materials Required Text Bodie, Zvi, Alex Kane, and Alan Marcus, Investments, McGraw-Hill, 7th Edition Recommended Texts Malkiel, Burton, A Random Walk Down Wall Street Siegel, Jeremy, Stocks for the Long Run, McGraw-Hill, 3rd Edition, 2002 Packet relevant articles from practitioners/ financial press Some of the articles are required and some are optional Description Topics Webpage Materials

13 description Part III outline Financial Economics

14 Description description Main objective: introduce you to academic research in By the end of the course you should have a good understanding of the most important questions in be able to apply various standard tools to address these issues start to develop your own research idea outline

15 description outline Good knowledge of the material of the core courses (Microeconomics, Macroeconomics, Econometrics) No prior course of finance is necessary

16 description outline to be specified later, but most probably: 1. weekly problem sets for group work 2. 1 paper to present 3. 1-page research proposal 4. final exam

17 Main structure First part of the course: Suppose financial markets work smoothly: Can we build a model of portfolio choice, which matches the facts quantitatively? no frictions: representative agent s decision on optimal consumption/investment in focus: relationship between aggregate consumption data and returns of assets Second part of the course: What can go wrong on financial markets? frictions: asymmetric information, search frictions, capital constraints, bubbles "changing liquidity" description outline

18 outline description outline I Consumption based asset pricing 1. The Euler-equation and classic issues in 2. Factor pricing models and the cross-section 3. Time series: predictability and the equity premium

19 II Asset pricing and liquidity 4. Asset pricing under asymmetric information: static set-up 5. Sequential trading and herding 6. Optimal dynamic trading with informational advantage 7. Search in finance 8. Capital constraints and limits to arbitrage 9. Delegated portfolio management 10. Bubbles and crashes 11. Aggregate liquidity: Financial crisis description outline