EC907-7-SP-CO:
Economics of Financial Markets

The details
2019/20
Economics
Colchester Campus
Spring
Postgraduate: Level 7
Current
Monday 13 January 2020
Friday 20 March 2020
20
11 September 2019

 

Requisites for this module
(none)
(none)
(none)
(none)

 

(none)

Key module for

MSC LN1412 Financial Economics and Accounting,
MSC L10312 Financial and Business Economics,
MSC L11112 Financial Economics,
MSC L10212 Financial Economics and Econometrics

Module description

In view of the 2007 financial crisis, the role of financial markets and the usefulness of risk management models have been called into question. The oversights that led to market and regulatory failures entail the use of reductionist financial models that abstract from institutions, incentives and strategic behaviour of market participants. This course is divided into 4 parts. In Part I, we will start with an overview of the 2007 financial crisis and the challenges it poses for financial economics.

Part II of the course reviews the scope of risk and return in and the role of equity/stock markets. The extreme boom bust characteristics of financial markets imply that the textbook models of the last two decades that assume Gaussian properties for asset returns have been found to be wrong. In addition to standard Capital Asset Pricing Model and the Markovitz model of equity portfolio management, the student is introduced to a more realistic regime switching portfolio model better suited to deal with boom bust characteristics of markets. In
Part III, the role of derivatives for risk mitigation in financial markets is studied. The Black-Scholes option pricing model under conditions of Brownian Motion is reviewed. The use of index futures for overcoming market risk is analysed. Part IV will look at systemic risk from financial activity in global derivatives markets, which are purported to enable risk sharing. Systemic risk is viewed as a negative externality problem for which financial network models have been put forward to provide holistic visualization to avoid fallacy of composition problems that lead to poor financial decisions and regulation.

Module aims

This module aims to equip student with theoretical and operational/computational skills to deal with financial market data in a post 2007 financial crisis environment.

Module learning outcomes

The significance of the boom bust cycle of markets is emphasized along with the role of financial innovations and regulatory incentives in credit and leverage creation. Portfolio techniques aimed at dealing with regime switches will be taught and a critical perspective on whether derivatives markets exacerbate or reduce financial market volatility will be given. New modelling tools such as financial network analysis to overcome problems of reductionist models and currently being pioneered at central banks and policy institutions will be made available to students. The student will be given new perspectives on financial markets that discourage business as usual thinking that precipitated the crisis. Students will receive rigorous training that will help them with jobs in banking, finance and regulatory institutions such as central banks and policy oriented organizations.

Module information

No additional information available.

Learning and teaching methods

One 2 hour lecture and 1 hour class per week .

Bibliography

This module does not appear to have a published bibliography.

Assessment items, weightings and deadlines

Coursework / exam Description Deadline Weighting
Coursework Assignment 24/04/2020
Exam 120 minutes during Summer (Main Period) (Main)

Overall assessment

Coursework Exam
50% 50%

Reassessment

Coursework Exam
50% 50%
Module supervisor and teaching staff
Prof Sheri Markose
For further information, send a message to scher@essex.ac.uk

 

Availability
Yes
Yes
No

External examiner

Dr Roberto Bonilla Trejos
The University of Newcastle-upon-Tyne
Resources
Available via Moodle
Of 30 hours, 30 (100%) hours available to students:
0 hours not recorded due to service coverage or fault;
0 hours not recorded due to opt-out by lecturer(s).

 

Further information
Economics

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