Concluding Thoughts on EC4024, Financial Economics
S. Kinsella
21.04.08

Purpose

This module was an attempt to introduce students to the standard tools of financial economics: mean variance portfolio analysis, valuation techniques, standard models like EMH, CAPM, APT, Black Scholes, and newer models like Lo's Adaptive Markets Hypothesis, and Richard Thaler's work in behavioural finance.

The course also had a subversive theme to it, introducing work by physicists trying to understand the stock market, and in the process showing us the flaws of the standard supply and demand model. We looked at the inclusion of uncertainty into market calculations and showed that they changed everything.

We spent time working on numerical examples of different modules, as well as trying to understand the mechanics of these systems through tutorial games.

If you feel like you can understand the financial pages on finance.yahoo.com, and you have a sense of the development of the subject of financial economics from the 1950's to today, then I consider this module a success. From the course outline, I wanted you to be able to

• read the financial pages

• understand what a stock, bond, or any risky asset is, and how to value it
• see the economists’ approach to decision making under uncertainty
• be exposed to the canonical models of finance: CAPM, APT, and Black-Scholes
• understand elementary probability theory, and data analysis
• see some of the episodes in financial history.
• get an inkling for the structure of the international financial system.

For the exam

In the exam you'll be tested on all the material we went through in the module. The aspects of the course to focus on are the exercises we went through in class and in the notes, the textbook, and the readings, in that order of importance.

Make sure to download all the most recent copies of the notes (I've fixed typos, etc, over the semester), and ensure you've listened to all the podcasts of lecture material before the lecture.