Financial and Quantitative Economics

This course provides a theoretical and empirical toolkit for the analysis of financial phenomena. In particular, it will cover how financial assets are valued; how businesses raise finance; how corporations are controlled; the role of corporate taxation and regulation; theories behind the financial crash; and the issues which arise in an international financial economy.

Logistics

Tutorial and consultation hours TBD.

Assessment and readings

• This course will be assessed through 8 homework assignments, due at 12pm on the day before each tutorial (or a week after the last tutorial).

• There will be compulsory readings every week. Several of those are drawn from Brealey, R. A., S. C. Myers and F. Allen. 2011. Principles of Corporate Finance (10th ed.), henceforth BMA. Other suggested readings will not be covered in tutorials by default, but feel free to email me in advance (at least one day before) if you wish to discuss them.

• At the end of each tutorial session, I will try and leave some time to discuss financial news or any other topics which might be of particular relevance or interest to the course. Again, I am happy to take suggestions ahead of time.

I. Risk, investment, portfolios and markets

Tutorial 1. Introduction

Readings

• BMA chapters 5, 6, 7 and 8.
• Bodie, Z., A. Kane, and A. J. Marcus. 2011. Investments and Portfolio Management (9th ed.). McGraw Hill. Chapters 5, 6, 7 and 9.

Tutorial 2. CAPM

Readings

BMA chapters 8, 9, 16 and 17.

Tutorial 3. Advanced asset pricing models

Readings

• BMA chapter 13.
• Cochrane, J. 2001. Asset Pricing. Princeton University Press. Chapter 21.

II. Corporate finance

Tutorial 4. Capital and financing

Readings

BMA chapters 8, 9, 16 and 17.

Tutorial 5. Corporate governance

Readings

• BMA chapters 12, 15, 31, 32 and 33.
• Bertrand, M. and S. Mullainathan. 2003. “Enjoying the Quiet Life? Corporate Governance and Managerial Preferences.” Journal of Political Economy, 111(5): 1043—1075.
• Aghion, P. and R. Holden. 2011. “Incomplete Contracts and the Theory of the Firm: What Have We Learned over the Past 25 years?” Journal of Economic Perspectives, 25(2): 181—197.

Tutorial 6. Corporate taxation

Readings

BMA chapters 16 and 18.

III. The financial sector

Tutorial 7. Banking, regulation and financial crashes

Readings

• Acharya, V. V. and M. Richardson. 2009. “Causes of the Financial Crisis.” Critical Review, 21(2-3): 195—210.
• Keys, B., J. T. Mukherjee, A. Seru. and V. Vig. 2010. “Did Securitization Lead to Lax Screening? Evidence from Subprime Loans.” Quarterly Journal of Economics, 125(1): 307—362.
• Reinhart, C. M. and K. S. Rogoff. 2008. “Is the 2007 U.S. Subprime Crisis So Different? An International Historical Comparison.” American Economic Review, 98(2): 339—344.

Tutorial 8. International finance

Readings

• Lewis, K. K. 1999. “Trying to Explain Home Bias in Equities and Consumption.” Journal of Economic Literature, 37(2): 571—608.
• Coval, J. D. and T. J. Moskowitz. 1999. “Home Bias at Home: Local Equity Preferences in Domestic Portfolios.” Journal of Finance, 54(6): 2045—2073.
• Karolyi, A. and R. Stulz. 2003. “Are financial assets priced locally or globally?” Handbook of the Economics of Finance, 1(Part B): 975—1020.