9178889742010-6-9150252001 - Economics of Financial Markets...

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Economics of Financial Markets This module reviews modern theories, and empirical analysis, of asset pricing. It consists of a number of topics: The consumption-based capital asset pricing model (C-CAPM) The stochastic discount factor in a general pricing rule Factor pricing models and recent empirical analysis of asset market behaviour using factor models The present value model of asset prices Time series behaviour of equity prices and predictability Behavioural finance; noise trading and herd behaviour Additional Topics: the term structure of interest rates; learning in financial markets The recommended text book for this course is: John Cochrane: Asset Pricing , Princeton University Press, 2005 (revised edition) Another text which covers some of the same material is: J. Campbell, A. Lo and C. McKinley, The Econometrics of Financial Markets , Princeton University Press, 1997 These are a technical books and mathematically intensive. However the purpose of the lectures is to go through the material in this book at a level of detail that will help you to understand the text. In addition the classes are intended to get you to understand the more technical aspects of the subject. I will concentrate on models that simplify the explanation and emphasise the intuition of the formal results. I will also discuss the empirical application of the theories since the objective is for you to see how well theories explain the real world. However this course is not an econometrics course and so I will emphasise the theory rather than the econometrics. A lot of Cochrane and Campbell et al is about the econometrics and you are encouraged to read up on these if you find them of interest. Certainly if you want to write a dissertation in asset pricing then the textbook will be very useful. Note that both these books cover a lot more material than we will have time to go through and also have incomplete coverage of some things we do (for example, behavioural finance). In order to get a fuller understanding of the issues we discuss you may also use another recent text:
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K. Cuthbertson, Quantitative Financial Economics , Wiley, 2005 It is more accessible than Cochrane and Campbell et al and can be a useful complementary text in order to grasp some of the more technical aspects of the models. Beyond this I will refer to recent journal publications. You will find these available electronically via the Information Services website or hard copies available in the library. In addition, if you really want to see what work is being done at the research frontier
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This note was uploaded on 09/09/2010 for the course ECO 11230 taught by Professor Dr.nogara during the Fall '10 term at St.Francis College.

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9178889742010-6-9150252001 - Economics of Financial Markets...

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