IDM082-The Economics of Financial Markets

Module Provider: APD
Number of credits: 10 [5 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded: ECM132 The Economics of Financial Markets
Current from: 2021/2

Module Convenor: Dr Tho Pham
Email: t.pham@reading.ac.uk

Type of module:

Summary module description:

The primary focus of this module is on understanding the underlying economic reasoningÌýbehind how asset prices are determined and how portfolio allocation decisions are made. This includes having an understanding of 1) the theory of choice and the objects of choice faced by an investor; 2) the optimal portfolio decision; 3) equilibrium asset prices; 4) equilibrium portfolio allocations given price and risk preference.

Aims:

The primary focus of this module is on understanding the underlying economic reasoningÌýbehind how asset prices are determined and how portfolio allocation decisions are made. This includes having an understanding of 1) the theory of choice and the objects of choice faced by an investor; 2) the optimal portfolio decision; 3) equilibrium asset prices; 4) equilibrium portfolio allocations given price and risk preference.

Assessable learning outcomes:

Students should be able to explain how asset prices are determined. They should be able to explain how investment decisions under certainty and uncertainty are made. They should be able to explain and critique the most prominent theories seeking to explain how portfolios are constructed.Ìý

Additional outcomes:

Students will learn skills required to do relevant research, write reports, understand technical articles and apply theoretical knowledge to real world situations.Ìý

Outline content:

Main topics include inter-temporal optimisation of consumption, investment decision given certainty, introduction toÌýexpected utility theory, mean-variance portfolio theory, capital asset pricing model, capital market imperfections.

Brief description of teaching and learning methods:

Detailed guidance on the topics covered will be provided in the 10 x 2 hours weekly lectures (and 1 x 1-hour revision class), together with comprehensive handouts covering the material discussed, examples, exercises and solutions to facilitate understanding of key concepts. Students may be required to do exercises corresponding to each topic, to read a significant amount of journal articles, and to undertake research using the library, internet, etc.Ìý