Financial Economics

FIN16 Financial Economics

Autumn 2021

  • Topics

    The aim of the course is to give an overview over the most important concepts in financial economics. The course focuses on key ideas and intuition while abstracting from technical detail. The course aims to cover the main topics listed below, but select among the subtopics.

     

    1 Asset Pricing 

    • Risk: what is risk?
      • Sources of risk
      • Quantification of risk
    • Priced risk: Why are only some risks priced?
      • Diversification
      • Two-fund separation
    • Priced risk: How is risk priced?
      • Systematic risk and its quantification
    • Risk management:
      • Insurance & Hedging

    2 Corporate Finance

    • Business organizations
      • Corporations: limited liability
      • Agency
    • Investment policy Asset pricing
      • Discounted Cash Flow valuation
      • Separability of investment and financing decisions
    • Capital structure
      • No frictions: irrelevance
      • Frictions: asymmetric information, moral hazard, incomplete contracts, taxes, bankruptcy costs
    • Corporate transactions

    3 Markets

    • Market structure and function

    4 Ethics in Finance

    • Corporate social responsibility

    5 The financial economist’s toolbox

    • Theory:
      • Mathematical models: logical consistency vs oversimplification
    • Learning from empirical models, econometrics
      • Methodological challenges

  • Learning outcome

    Knowledge

    • have an overview over the financial economics field
    • know key ideas in the main subfields of financial economics: asset pricing and corporate finance
    • know key facts about financial markets and financial institutions
    • understand important problems raised in financial ethics and financial stability
    • understand, at the introductory level, why models are used in theoretical and empirical financial economics and the pitfalls posed by looking at the world through the lens of a mathematical model

    Skills

    • be able to think critically about topics in financial economics and to contribute to a discussion of these topics
    • be able to set current events in financial markets in an financial economics context, and to follow ongoing regulatory issues concerning financial markets
    • be prepared for further study of economics in general and financial economics in particular

    General competence

    • develop critical thinking skills
    • introductory understanding of the intertwined roles of theory, empirics, and practical insight when confronting real world problems
    • develop insight into ethical questions

  • Teaching

    Lectures, Assignments

     

    Lectures will be online if the Covid pandemic continues to make that prudent, otherwise there will be regular class room lectures.

  • Recommended prerequisites

    Introductory courses in finance (e.g. BED3) and macroeconomics (e.g. SAM3) may provide useful background for this course. 

  • Assessment

    Written term paper on an assigned topic. The student can choose between either an individual term paper or a group project.

    The term paper has to be written in English.

  • Grading Scale

    Pass/Fail

  • Literature

    Brealy, Myers, and Allen (2019), Principles of Corporate Finance, 13th Edition, McGrawHill.

    Mishkin (2018), The Economics of Money, Banking and Financial Markets, 12th Edition, Pearson.

    Additional readings will be assigned to cover topics not found in the books and/or provide more in-depth coverage of selected key ideas and facts, in particular for the different term paper projects. Examples:

    Papers/Chapters

    Barber & Odean (2000), Trading is Hazardous to Your Wealth, Journal of Finance Vol. LV No. 2 (April).

    Bessembinder (2018), Do stocks outperform Treasury bills?, Journal of Financial Economics 129, pp. 440-457.

    Haldane & Madouros (2012), The dog and the frisbee, Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 109-159: https://ideas.repec.org/a/fip/fedkpr/y2012p109-159.htmlhttps://ideas.repec.org/a/fip/fedkpr/y2012p109-159.html

    Jensen (2014), Integrity: Without it Nothing Works, SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1511274https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1511274

    Welch (2011), Ethics, SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=876124https://papers.ssrn.com/sol3/papers.cfm?abstract_id=876124.

    Background Books

    Geitner (2014), Stress Test: Reflections on Financial Crises, Crown.

    King (2016), The End of Alchemy: Money, Banking, and the Future of the Global Economy, W. W. Norton & Company.

    Lewis (2010),The Big Short: Inside the Doomsday Machine, W. W. Norton & Company.

    Lowenstein (2001), When Genius Failed: The rise and fall of Long Term Capital Management, HarperCollins.

Overview

ECTS Credits
7.5
Teaching language
English
Semester

Autumn. Offered autumn 2021.

Course responsible

Associate Professor Tommy Stamland, Department of Finance, NHH.