Financial Markets and Decisions I
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. The topics covered include expected utility theory, CAPM, adverse selection, moral hazard, the Modigilani-Miller theorems and the incentive effects of debt and equity. Applications are discussed including auctions and insurance.
The module content is globally relevant as it theoretically discusses financial markets, 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 2: |
This course aims to describe the theoretical foundations of the economic frameworks that are used to study important issues in Finance. Financial markets are characterized by risk and uncertainty. The role of risk 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. study 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 analyze the arguments made in support of CAPM and The Efficient Markets Hypothesis.
ILO: Personal and key skills
- 4. think analytically about financial markets and firms
- 5. present technical argument
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|
|Form of assessment||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|A problem set for each topic and a revision sheet after all topics are completed.||1 hour||1-5||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||25||50 minutes||1-5||Written or oral feedback|
|Examination||75||1.5 hours||1-5||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 Exam and Examination||Examination (100%) 1.5 hours||1-5||August/September assessment 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
Indicative learning resources - Basic reading
Varian, H. (2010) Intermediate Microeconomics: A Modern Approach (8th Edition), W.W. Norton & Company
Welch, I. (2013) Corporate Finance (3rd Edition), Pearson
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Last revision date