GRA 6517 Theory of Financial Markets - RESIT EXAMINATION
GRA 6517 Theory of Financial Markets - RESIT EXAMINATION
Resit examinations probably autumn 2019. The planned resit for spring 2020 is cancelled.
This course is run for the last time autumn 2018 as a 1st semester mandatory programme course for MSc in Finance.
The course looks at the purpose of finance and the role of financial markets in an economy. A big part of this theory looks at how asset prices are determined, which includes Markowitz’s portfolio theory, the Consumption-based Capital Asset Pricing Model, the Capital Asset Pricing Model (CAPM), Merton’s Intertemporal CAPM, Arbitrage Pricing Theory, and Production-based Asset Pricing. These theories allow us to examine why and how asset prices are determined. We also examine the concept of market efficiency and how investor behavioral biases may affect the workings of financial markets. The course is rigorous and requires good knowledge of basic calculus and linear algebra. Nevertheless, each topic includes and is motivated by real life examples to be able to relate theory with practice.
The students at the end of the course are expected to know
- The role and value of financial markets in an economy
- The concept of the efficiency of financial markets
- Why asset pricing and understanding the relation between return and risk is fundamental in finance
- Classical asset pricing theories: CCAPM, CAPM, APT, etc.,
- The connection between consumption risk, consumption and investment choices and the risk-return relation
- The fundamental theorem of asset pricing
- How information aggregates in a financial market
- Certain market imperfections and failures
The students at the end of the course are expected to be able to
- Implement the classical mean-variance analysis for portfolio selection
- Use different pricing concepts (e.g. state prices) and models (e.g. CAPM, CCAPM, APT) to price fundamental securities and contingent claims
The students at the end of the course should be able to understand the assumptions, applicability, and limitations of the various asset pricing models and concepts. Also, the students should be able to critically evaluate the various assumptions and hypotheses, in view of the known market imperfections and in relation to the efficiency and role of financial markets.
Part I: Fundamentals
- Fundamental valuation and market efficiency
- The role of financial markets and institutions
Part II: Portfolio choice
- Mean-variance portfolio choice
Part III: Principles of asset pricing
- Consumption CAPM
- Risk-aversion and risk-neutral pricing
- CAPM, ICAPM, APT
- Production-based Asset Pricing
Part IV: Asset Pricing Tests and Market imperfections
- Tests of asset pricing models
- Asymmetric information
- Behavioral theory and limits to arbitrage
Lectures. Class participation, personal studying of material discussed in class, and problem solving is essential.
While a compulsory textbook is listed, the lectures will not strictly follow chapters of the book. The instructor will provide lecture notes, material, examples, and exercises that will help the student understand the topics discussed in class.
Wharton Research Data Services (WRDS), Excel, and Bloomberg will be used. SAS and/or STATA will likely also be helpful and used in the learning process.
Please note that while attendance is not compulsory in all courses, it is the student’s own responsibility to obtain any information provided in class.
This is a course with continuous assessment (several exam components) and one final exam code. Each exam component is graded by using points on a scale from 0-100. The components will be weighted together according to the information in the course description in order to calculate the final letter grade for the examination code (course). Students who fail to participate in one/some/all exam elements will get a lower grade or may fail the course. You will find detailed information about the point system and the cut off points with reference to the letter grades when the course starts.
At resit, all exam components must, as a main rule, be retaken during next scheduled course.
All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have specific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.
Exam category | Weight | Invigilation | Duration | Support materials | Grouping | Comment exam |
---|---|---|---|---|---|---|
Exam category: Submission Form of assessment: Written submission Exam code: GRA65173 Grading scale: ECTS Grading rules: Internal and external examiner Resit: Examination every semester | 100 | Yes | 3 Hour(s) |
| Individual | Final written examination under supervision |
A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 6 ECTS credits corresponds to a workload of at least 160 hours.