• University of Exeter Business School
• Module

Topics in Financial Economics

Module description

Note for Students
This course will assume that students are familiar with basic calculus (first and second derivatives and optimization of functions) and matrix algebra (addition, multiplication, inverse of a matrix) etc.

Summary:

This module provides a solid introduction to the foundations of financial theory, including decision making under uncertainty and utility theory, portfolio choice, asset pricing models, market efficiency and anomalies and selected empirical evidence on these. The concepts and models of modern finance theory are widely employed in the investment industry and an understanding of these provides a solid foundation for a career in finance, whether as a fund manager, investment analyst or financial advisor and for further advanced study.

Additional Information:

Internationalisation: The financial economics topics taught in this module are relevant across countries and many international examples are discussed in the lectures.

Sustainability: All of the resources for this module are available on the ELE (Exeter Learning Environment).

Employability: Students develop their understanding of the theoretical foundations of financial economics and their empirical testing that are essential background to working in the financial sector.

Module aims - intentions of the module

This module introduces students to the foundations of finance theory as well as to a selection of related empirical research. The theoretical models and empirical research covered form the basis of many applications in financial markets and are widely employed in the finance industry. An understanding of the theoretical and empirical issues covered in this course provides a strong background for a career in finance and for also for further advanced study.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

On successfully completing the module you will be able to...

• 1. model the problem of investor choice under uncertainty;
• 2. explain and derive the mathematics of portfolio theory;
• 3. compare and contrast the assumptions and theoretical implications of the Capital Asset Pricing Model, the Arbitrage Pricing Theory, the Stochastic Discount Factor approach to asset pricing and consumption based models;
• 4. explain the role of the Efficient Markets and the market anomalies that present contrary evidence to market efficiency

ILO: Discipline-specific skills

On successfully completing the module you will be able to...

• 5. use standard mathematical tools, including basic calculus and matrix algebra, to analyse models used in financial economics;
• 6. develop rigorous theoretical arguments based on mathematical reasoning;
• 7. analyse and solve quantitative problems in finance;
• 8. access selected empirical research literature and critically appraise it.

ILO: Personal and key skills

On successfully completing the module you will be able to...

• 9. demonstrate conceptual understanding by solving quantitative problems;
• 10. use logical analysis to structure arguments for and against financial models;
• 11. work independently and discuss the strengths and weaknesses of theoretical models in finance.

Syllabus plan

• Review of Mathematical Background
• Choice under Uncertainty
• Mean-Variance Portfolio Theory
• Arbitrage Pricing Theory, CAPM, Stochastic Discount Factor approach and Consumption based models.
• Market Efficiency and Anomalies

Learning activities and teaching methods (given in hours of study time)

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

Details of re-assessment (where required by referral or deferral)

Indicative learning resources - Basic reading

Basic reading:

The following text book will be used in the course. However given the nature of the topics additional readings may be prescribed.

Main Textbook:

Elton, E.J., Gruber, M.J., Brown, S.J. and Goetzmann, W.N. (2014) Modern Portfolio Theory and Investment Analysis, International Student Version, 9th edition, US: John Wiley & Sons.

Indicative learning resources - Web based and electronic resources

Exeter Learning Environment (ELE) portal of the course and the materials available there.

https://vle.exeter.ac.uk/course/view.php?id=10028 .

Indicative learning resources - Other resources

A list of prescribed readings  and web resources will be made available on the ELE.

Lecture handouts will be based on related material from main textbook and other prescribed materials. Some topics require reading of published research papers. Where additional readings (research papers) are prescribed, you will need to access these via the University’s electronic library. URLs will be provided to access other materials.

Key words search

Financial Theory, Investment Management, Asset Pricing, Financial Economics.