IB9EN-15 Financial Markets
Introductory description
This module provides an overview of financial markets with a particular focus on the valuation of financial securities.
Module aims
This module aims to explore and formalize the fundamental relationships between investors’ decision-making in the presence of uncertainty (“risk”) and the cross-sectional and inter-temporal properties of prices and returns of financial assets. Subsidiary objectives include the development of a profound understanding of the characteristics of different asset classes, the mechanics of the markets on which these are traded, and the theoretical framework that determines the “fair” prices and returns for such assets. This module complements the parallel core module “Corporate Financial Management” which explores the same theoretical framework from the corporate rather than the investor’s angle. Together, the first-term core modules will also equip students with the skills and techniques required to evaluate and conduct research in the area of Financial Economics. Finally, this module lays down the theoretical and methodological foundations on which the more advanced (elective) modules (that are available in the Spring term) are built.
Outline syllabus
This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.
Market and Instruments.
Portfolio Choice Theory.
CAPM: Theory and Empirics.
APT and Factor Models.
Efficient Market Hypothesis and Anomalies.
Equity Valuation Models.
Financial Statement Analysis.
Bond markets: introduction.
Option markets: introduction.
Portfolio Performance Evaluation.
Learning outcomes
By the end of the module, students should be able to:
- Explain and discuss the characteristics of different asset classes, and the mechanics of the markets on which these are traded.
- Apply theory to understand and implement optimal asset allocation decisions, and explain the implications for the cross-section of asset prices and returns.
- Use the theory and its application to quantify the risk inherent in specific assets or portfolios of assets, and compute the “fair” price and return of such.
- Understand and quantify the risks and other characteristics of a given (“real”) market environment and construct optimal investment strategies on the basis of this analysis.
- Critically evaluate different theoretical models: understand and be able to explain the assumptions made and intuitively assess their vailidity, understand and be able to explain the implications and discuss their scope and limitations.
- Critically evaluate and analyse real world events, case studies and/or data, in the context of a given theoretical framework.
Indicative reading list
Core:
Bodie, Z., A. Kane, and A.J. Marcus: “Investments“; 12th edition, McGraw-Hill. 2021 Additional:
Martellini, L., P. Priaulet, and S. Priaulet: “Fixed-income securities”, Wiley, 2003.
McDonald R. L.: “Derivatives Markets”: 3rd edition, Pearsson, 2012.
Subject specific skills
Build, explain, and use formal models that capture investment opportunities with uncertain (“risky”) outcomes, and investors’ preferences regarding such risky outcomes.
Build (using spreadsheet or other suitable software) implementations of the models developed in the module to explicitly calculate asset prices or optimal portfolios based on model parameters.
Build (using a spreadsheet or other statistical software) a framework in which it is possible to estimate the parameters of, or empirically assess the validity of such models.
Transferable skills
Present results in a concise and structured manner to a non-expert audience.
Demonstrate problem-solving skills.
Demonstrate written and verbal communication skills.
Study time
| Type | Required |
|---|---|
| Lectures | 10 sessions of 2 hours (13%) |
| Seminars | 9 sessions of 1 hour (6%) |
| Private study | 121 hours (81%) |
| Total | 150 hours |
Private study description
Self study to include preparation for assessment and pre-reading for lectures and seminar preparation
Costs
No further costs have been identified for this module.
You do not need to pass all assessment components to pass the module.
Assessment group D8
| Weighting | Study time | Eligible for self-certification | |
|---|---|---|---|
Assessment component |
|||
| Class Test | 20% | No | |
Reassessment component is the same |
|||
Assessment component |
|||
| Group work | 20% | No | |
Reassessment component is the same |
|||
Assessment component |
|||
| In-person Examination | 60% | No | |
|
|||
Reassessment component is the same |
|||
Feedback on assessment
Summary feedback on examination performance and the class tests will be posted on my.wbs.
Post-requisite modules
If you pass this module, you can take:
- IB9EL-15 Practice of Investment Management
Courses
This module is Core for:
- Year 1 of TIBS-LN1J Postgraduate Taught Finance and Economics
This module is Core optional for:
- Year 1 of TIBS-N4N3 MSc in Accounting and Finance