Financial Markets and Decisions I
This course is the first in a two-part series on the economics of finance. The pair of modules BEE2027 and BEE3034 present the theory of decision-making under risk and the economics of information, discussing applications of the theory in the areas of banking and finance.
This module, FMD I is divided in two parts: the first part deals individual decision making over time and under uncertainty. The second part links individual behaviour to financial markets and equilibrium, including risky assets, micro-foundations of CAPM, and the efficient market hypothesis. The module will also include an introduction to behavioural finance.
Students will be assessed through a mid-term test and a final exam.
The module content is globally relevant as it discusses financial markets theoretically, international trends in asset pricing models used by the majority of firms, and comparative studies through up-to-date research.
Students acquire several skills valued by employers, including a theoretical knowledge, and understanding of financial markets, the application of theory, the ability to think like an economist, and designing firm level policies
Full module specification
|Module title:||Financial Markets and Decisions I|
|Duration of module:||
Duration (weeks) - term 1: |
0Duration (weeks) - term 2:
11Duration (weeks) - term 3:
This course aims to describe the theoretical foundations of the economic frameworks that are used to study important issues in Finance. Financial markets are characterised by risk, time, and uncertainty. The role of risk, time, and uncertainty in the decision-making of various agents participating in financial markets will be studied in detail.
ILO: Module-specific skills
- 1. apply economic analysis to asset pricing and decision-making under risk and uncertainty.
ILO: Discipline-specific skills
- 2. explain the basic asset pricing equation and decision-making by agents under conditions of risk and uncertainty and the consequences of these decisions in the financial markets;
- 3. critically analyse the arguments made in support of CAPM and The Efficient Markets Hypothesis;
- 4. develop an understanding of the concepts of finance theory and its limitations
ILO: Personal and key skills
- 5. think analytically about financial markets and firms;
- 6. Demonstrate technical knowledge and skills without reference to external sources of information or other resources.
Learning activities and teaching methods (given in hours of study time)
|Scheduled Learning and Teaching Activities||Guided independent study||Placement / study abroad|
Details of learning activities and teaching methods
|Category||Hours of study time||Description|
|Scheduled Learning and Teaching Activities||20||Lectures|
|Guided Independent Study||130||Reading, preparation for classes and assessments|
|Form of assessment||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Problem sets for each topic and a revision sheet after all topics are completed.||1 hour||1-6||Written and verbal feedback after students have had the chance of going through the problem sheets on their own.|
Summative assessment (% of credit)
|Coursework||Written exams||Practical exams|
Details of summative assessment
|Form of assessment||% of credit||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Mid-term test||30||60 minutes||1-6||Written or oral feedback|
|Examination||70||90 mins||1-6||Written or oral feedback|
Details of re-assessment (where required by referral or deferral)
|Original form of assessment||Form of re-assessment||ILOs re-assessed||Timescale for re-assessment|
|Mid-term test (30%)||Mid-term test (60 mins, 30%)||1-6||August/September Reassessment Period|
|Examination (70%)||Examination (90 mins, 70%)||1-6||August/September Reassessment Period|
- Decision making over time
- Decision making under uncertainty
- Mean-Variance preferences
- Consumption-Based Asset Pricing
- Equity Premium Puzzle
- CAPM foundations
- Perfect Markets
- Efficient Markets Hypothesis
- Behavioural Finance
Indicative learning resources - Basic reading
Varian, H. (2014) Intermediate Microeconomics: A Modern Approach (9th Edition), W.W. Norton & Company.
Workouts in Intermediate Microeconomics (9th Edition) by Bergstrom and Varian
Berk and DeMarzo (2020) Corporate Finance (5th Edition), Pearson Education
Bodie, Kane & Marcus (2021) Investments (12th edition), McGraw-Hill
Module has an active ELE page?
Last revision date