This is the course page for EC4024, Financial Economics, Spring 2016.

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Module Outline

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Data for data project (.xlsx format)

Take home exam

Lecture Notes & Readings

1. Introduction to the module.

What is the purpose of finance? Basics of valuation, how investors value firms, how firms take decisions to invest. An example from real estate finance.

2. How to read a balance sheet, what equity is, and isn’t, how leverage works, where money comes from. The role of leverage in the collapse of the Irish economy.

• Adrian and Shin, Liquidity and Leverage. 
• McLeay et al, Money creation in the modern economy, Bank of England
• Bolton et al, Investment, Liquidity, and Financing under Uncertainty

3. Sociology of Finance. What finance is when you're not looking

• Joris Luyendijk, Swimming With Sharks: My Journey into the World of the Bankers, entire book.
• David Tuckett, Minding the Markets, An Emotional Finance View of Financial Instability, Chapters 2-3.
• Nigel Dodd, The Social Life of Money, Princeton University Press, chapters 2 and 3.
• Karen Ho, Liquidated, Duke University Press, Chapter 7 especially.

4. Contract theory and monitoring. Finance, convenants and ‘the law’. Burning bondholders and all that: why Parri Passu matters more than you do.

• Oliver Williamson: The theory of the firm as governance structure: from choice to contract. Journal of Economic Perspectives, 2002.
• Shleifer and Vishny, A Survey of Corporate Governance, Journal of Finance, 1997

5. How Lombard Street works, theory of the dealer, and your very first real supply and demand curves. Stigum’s Money Markets, the economics of the dealer function.

• Perry Merling, New Lombard Street, Chapters 2 and 3.
• M.F.M Osborne, The Stock Market from a Physicist's Viewpoint, Crossgar Press, 1977 Chapter 2 and Chapter 3.
• Jack Treynor, The economics of the dealer function

6. Bond Markets: not all they are cracked up to be. Pricing, allocation and provenance of bonds. Bond markets and FX markets.

• Bradley et al, Principles of Corporate Finance, Chapters 3, 4 and 6
• K. Pilbeam, Finance and Financial Markets, 3rd Ed, Palgrave, 2009, chapter 6.
• Stigum's Money Markets, chapter2, 1, 2, and 3 (up to Duration and Convexity).

7. Zombie theories of finance. CAPM, APT, EMH. Acronyms you need to know and distrust deeply.

• Watch John Quiggin's lecture on Zombie Economics.
• Watch Paul Samuelson's Masters of Finance interview.
• Modigliani, F. and Miller, M. (1958) "The Cost of Capital, Corporation Finance and the Theory of Investment", American Economic Review 48 (3), pp. 261-297.
• Fama, E.F. (1970) "Efficient Capital Markets: A Review of Theory and Empirical Work", Journal of Finance 25 (2), pp. 383-417.
• André F. Perold The Capital Asset Pricing Model The Journal of
• Economic Perspectives, Vol. 18, No. 3. (Summer, 2004), pp. 3-24.
• (Here are some Notes on CAPM I made a few years ago)
• Anne Villamil, Modigliani Miller Theorem, New Palgrave Dictionary of Economics

8. Finance, Innovation and Growth 1: Basics

• Greenwald, B. C. and Stiglitz, J. E. (1993). Financial market imperfections and business cycles. The Quarterly Journal of Economics,108(1)

9. Finance, Innovation and Growth 2: Refinements

• Perez, C. (2010). Technological Revolutions and Techno-Economic Paradigms. Cambridge Journal of Economics, 34(1).
• Janeway, William "Doing Capitalism in the innovation economy: Markets, capitalism, and the State", Cambridge University Press, 2013 (Entire book, must read).
• Romer, P. (1990). Endogenous Technological Change. Journal of Political Economy, 98(5)

10. Algorithmic Trading

• Ana Avramovic. Who let the Bots out? 
• Arnuk, Sal and Joseph Saluzzi (2012), Broken Markets, Chapters 2 and 10.
• Tarun Chordia, Amit Goyal, Bruce N. Lehmann, Gideon Saar (2013) High-frequency trading, Journal of Financial Markets 16(4).

11. Finance, Economics, and Bitcoin: Don't believe the hype.

• Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System

• Anton Badev and Matthew Chen Bitcoin, technical analysis and background data. Federal reserve board, 2014
• Pavel Ciaian et al, The Economics of BitCoin Price Formation.

12. Review.