ECON30024 Economics of Financial Markets SUBJECT GUIDE Semester 1, 2021 Prepared by Shuyun May Li s[email protected] Department of Economics Faculty of Business and Economics 2 Subject Outline Introduction Welcome to Economics of Financial Markets! This subject is intended for students majoring in Economics who have a strong interest in finance and some academic background in finance. It discusses the economics of financial markets at an intermediate level, with a focus on important theories on the determination of asset prices and returns. Subject Overview and Aims The overall aim of this subject is to provide students a solid foundation in the basic economic principles governing financial markets. We start with an overview of financial markets and financial assets, then discuss various modern theories of financial decision- making under uncertainty, including portfolio selection under mean-variance preference, the Capital Asset Pricing Model (CAPM), the Arbitrage Pricing Theory (APT), empirical testing of the CAPM and APT, price determination based on net present value (NPV) relationships, dynamic asset pricing and the equity premium puzzle. We conclude with an application to a particular financial market--the bond market. For further details, refer to the University Handbook https://handbook.unimelb.edu.au/view/2021/ECON30024 Learning Outcomes Learning Outcomes and Generic Skills To view the subject objectives and the generic skills you will develop through successful completion of this subject, please see the University Handbook: https://handbook.unimelb.edu.au/view/2021/ECON30024 Eligibility and Requirements To view the eligibility and requirements, including prerequisites, corequisites, recommended background knowledge and core participation requirements for this subject, please see the University Handbook: https://handbook.unimelb.edu.au/view/2021/ECON30024 3 Academic Staff Contact Details Please see the Canvas LMS page of the subject for full contact details of the teaching staff in this subject. Subject Coordinator Contact Details Name: Shuyun May Li Email:
[email protected] Phone: 83445316 Consultation Hours: Friday, 12-1pm (online) Email Protocol Please note that we are only able to respond to student emails coming from a University email address. Please do not use personal email addresses such as Yahoo, Hotmail or even business email addresses. Emails from non-University email addresses may be filtered by the University’s spam filter, which means that we may not receive your email. All correspondence relating to this subject will only be sent to your University email address. Note that you must first activate your University email address before you can send or receive emails at that address. You can activate your email account at this link: http://accounts.unimelb.edu.au/. While academic staff endeavor to address queries received via email, it is more appropriate to resolve substantive questions during lectures and tutorials and during normal consultation hours. With this in mind, we encourage students to attend all lectures and tutorials and to familiarise themselves with the consultation hours offered by the lecturer and tutors Lectures Lecture Times The official lecture times are Friday 11am-1pm. However, lectures will be pre-recorded and uploaded on LMS under Lecture Capture by Tuesday in every week. Please listen to the recordings of lectures in a timely manner to keep yourself on track. Lecture Participation Requirements To increase interaction with students, I will use the first half of the second lecture time, 12- 1pm Friday, to run a live online discussion session. In these 30-minute discussion sessions, I will briefly summarise what’s covered in the previous week, clarify some questions arising from tutorials and/or Canvas Discussions, and answer questions you may raise during the session. The second half of the lecture time will run like a normal online consultation for which you are not required to stay if you do not have questions to ask. 4 You are strongly recommended to attend these live online discussion sessions. Please be aware that these sessions will not be recorded, but I will upload the slides that I use to guide discussions. I think this is a good way for me to directly interact with you and address your confusions and concerns. It’s also a good way to keep you on track and engaged in the learning of this subject. By the time of the online discussion session, you should have gone through the lectures for the previous week and worked on the relevant tutorial questions. This would allow you to get the most out of the discussion sessions. You can leave the meeting after the discussion session or stay to ask questions or listen to other students’ questions. For students who are unable to attend the live online discussion sessions due to time zone or other restrictions, I want to assure you that there are many other ways to communicate with me and ask questions, such as Canvas Discussions, Canvas chat, emails, or individual appointment with me. A Preliminary Lecture Schedule Week Date Commencing Topic Required Reading 1 1/3/2021 Asset markets and asset prices Bailey, Chap. 1 & 2 2 8/3/2020 Predictability of prices and market efficiency Bailey, Chap. 3 3 15/3/2021 Decision making under uncertainty Bailey, Chap. 4 4 22/3/2021 Portfolio selection: the mean- variance model Bailey, Chap. 5 5 29/3/2021 Portfolio selection continue, the capital asset pricing model (CAPM) Bailey, Chap. 6 6 12/4/2021 The CAPM continue, the arbitrage pricing model (APT) Bailey, Chap. 7 7 19/4/2021 Mid-term exam, APT continue Bailey, Chap. 8 8 26/4/2021 Empirical appraisal of CAPM and APT Bailey, Chap. 9, 10 9 3/5/2021 Asset pricing based on NPV relationship Bailey, Chap. 10 10 10/5/2021 Dynamic asset pricing and the equity premium puzzle Bailey, Chap. 11 5 11 17/5/2021 Bond markets and the term structure of interest rates Bailey, Chap. 12, 13 12 24/5/2020 Review Summary and review Lecture Slides and Readings Lecture slide, supplementary readings, pre-recorded lectures, tutorial problem set for the coming week, and other study materials for the week will be uploaded on LMS by Tuesday in every week. At the end of the lecture slides for each topic, there is a list of review questions. These questions reflect what I expect you to learn from the topic. You should use them to check your understanding of the lectures. Recorded Lectures Pre-recorded lectures for this subject will be made available, which can be accessed by clicking on the Lecture Capture menu item on the LMS page for this subject. In these recorded lectures, key concepts and ideas will be elaborated on verbally and important equations will be derived in more details. Please listen to the recorded lectures in a timely manner. When you listen to lecture recordings, take notes on lecture slides and mark your questions. You can ask questions on Canvas Discussions or bring them to the online discussion sessions. These recordings also allow you to revise lectures during the semester, or to review them in preparation for the end of semester exam. Tutorials Tutorial Times Tutorials will commence in the second week. Refer to University timetable for the date, time and location of the tutorial classes. https://sws.unimelb.edu.au/2021/ Tutorial Participation Requirements Starting from week 2, there will be a weekly online quiz consisting of 5 multiple choice or true/false questions on the previous week’s lectures. You need to complete the quiz by Wednesday 12pm (that’s the time our first tutorial class starts) and get 2 or more questions correct to earn 0.5 tutorial participation mark. Answers for these questions will be provided in the tutorial classes in that week. 6 Tutorial classes will be delivered LIVE online. Your tutor will email you the Zoom meeting links for your official tutorial classes. Even though tutorial participation is not compulsory, your participation in tutorials is essential for mastering what is covered in lectures. You are strongly recommended to attend all tutorials, tackle the problems in advance and review them afterwards. If for some legitimate reason, you are not able to attend the allocated tutorial, you are allowed to attend a replacement tutorial in the same week. You need to contact your tutor and your tutor will arrange a meeting link for the replacement tutorial to be sent to you. A student is not permitted to attend more than THREE replacement tutorials during the semester. The tutors will take turns to record one live tutorial class for each week. Recorded tutorials and tutorial solutions will be uploaded on Friday, after all tutorial classes for the week have been done. You will be informed if your tutorial class is going to be recorded. If you do not want to attend that tutorial class, you can contact your tutor and your tutor will arrange for you to attend another tutorial class in that week. A privacy statement regarding video use and recording in teaching is available for you to read: https://lms.unimelb.edu.au/students/student-guides/zoom-student-privacy. Please let me know if you have any concerns. For those students who could not attend live tutorials due to time zone or other restrictions, please listen to the recorded tutorials and work through the problems in a timely manner. For more detailed policies on tutorial participation, see the file titled “A List of Important Subject Policies for ECON30024 Economics of Financial Markets” posted on LMS. Tutor Consultation The tutors for this subject are Yunpeng Deng, Kelly Bradley, and myself. My consultation session is 12:30-1pm on Friday in every week, after the live discussion session. Yunpeng and Kelly will take turns to hold a 1-hour tutor consultation session in every week, starting from week 2. The consultation time will be announced on LMS. Zoom links for all consultation sessions will be available under Canvas Zoom. Students can also ask questions through Canvas Discussions, Canvas chat or emails. I encourage you to ask questions on Canvas Discussions so that other students can see your questions, answer your questions, and see replies to your questions. The tutors and I will regularly check the discussion forum and answer your questions, but please allow for 48 hours for your questions to be replied. Some questions require elaborate explanation or derivation, and you should come to consultation sessions for such questions. I strongly encourage you to ask questions or raise concerns whenever you got one, through the various ways of communication. Your progress in this subject and your wellbeing are deeply cared by me and the tutors. Private Tutoring Services Faculty has become increasingly concerned about the existence of a number of private tutoring services operating in Melbourne that heavily target University of Melbourne students enrolled in FBE subjects. 7 Students are urged to show caution and exercise their judgement if they are considering using any of these services, and to please take note of the following: Any claim by any of these businesses that they have a “special” or “collaborative” or “partnership” style relationship with the University or Faculty is false and misleading. Any claim by a private tutoring service that they are in possession of, or can supply you with, forthcoming University exam or assignment questions or “insider” or “exclusive” information is also false and misleading. The University has no relationship whatsoever with any of these services and takes these claims very seriously as they threaten to damage the University’s reputation and undermine its independence. It is also not appropriate for students to provide course materials (including University curricula, reading materials, exam and assignment questions and answers) to operators of these businesses for the purposes of allowing them to conduct commercial tutoring activities. Doing so may amount to misconduct and will be taken seriously. Those materials contain intellectual property owned or controlled by the University. We encourage you to bring to the attention of Faculty staff any behaviour or activity that is not aligned with University expectations or policy as outlined above. Assessment Assessment Overview Your assessment for this subject comprises the following: Assessment Task Individual or Group Due Weighting Weekly Canvas quiz Individual week 2-12 5% Assignment 1 Group 29/3/2021, 4pm 8% Assignment 2 Group 14/5/2021, 4pm 12% Mid-semester examination (online quiz, open book, 1 hour) Individual 23/4/2021, 12- 1pm 15% End of semester examination (online quiz, open book, 3 hours) Hurdle requirement: To pass this subject, students must pass the end of semester examination Individual During the exam period 60% For more detailed policies on each assessment, see the file titled “A List of Important Subject Policies for ECON30024 Economics of Financial Markets” posted on LMS. 8 Assignment Submission Assignments are to be completed by a group consisting of no more than FOUR students. Students should form their own assignment groups. Members of a group can be from different tutorial classes. Each group only submits one copy of assignment. Assignments should be submitted online via Canvas Assignments. Detailed instruction on group registration and submission will be announced on LMS at appropriate time. All members of a group are expected to contribute to the assignment. To encourage students to contribute, some form of group member evaluation will be conducted after each assignment is due. Please note that you are required to keep a copy of your assignment after it has been submitted as you must be able to produce a copy of your assignment at the request of teaching staff at any time after the submission due date. Penalties for Late Submission Late submissions will incur a penalty (10% daily penalty for assignments, and 10% per 10 minutes for exams) unless an extension has been granted or there are unexpected legitimate reasons. Students with a genuine and acceptable reason for not completing an assignment (or other assessment task), such as illness, can apply for special consideration (see policy below). The maximum extension for assignments is THREE days. For more detailed policies on each assessment, see the file titled “A List of Important Policies for ECON30024 Economics of Financial Markets” posted on LMS. Subject Resources Prescribed References The textbook for this subject is Bailey, R.E. The Economics of Financial Markets, Cambridge University Press, 2005. A pdf version of the book is freely downloadable on internet. Supplementary Readings As the subject progresses, supplementary readings, including journal articles, policy discussion papers, and media reports, will be provided via Readings Online on LMS. Academic Integrity Academic Honesty The University maintains high academic standards in its courses and subjects and expects students to conduct themselves in a manner which is fair, honest and consistent with the principles of academic integrity, particularly when undertaking assessment and research. http://academicintegrity.unimelb.edu.au/ 9 Referencing Each source used for a written piece of assessment must be referenced. This is to acknowledge that your material is not based entirely on your own ideas, but is based, in part, on the ideas, information, and evidence of others. This is desirable as you are attending University in order to learn from others. You will be required to use the Harvard System of referencing. The library has prepared a website to help students correctly reference: http://www.library.unimelb.edu.au/recite It is important that all material you present for assessment is referenced correctly. Material that has not been referenced correctly may be considered to be plagiarised, and as such may be penalised. We will also look for evidence that material included in the bibliography has been used in the assignment. The Academic Skills Unit has produced resources to assist students with referencing https://services.unimelb.edu.au/academicskills/undergrads/top_resources The Library also provides advice on referencing: http://library.unimelb.edu.au/cite University Services Timetable MyTimetable is a class timetabling system that creates individual timetables for students based on submitted class preferences, ensuring everyone has an equitable opportunity of getting their preferred class timetable. You will use this system to create your class timetable prior to each study period. By following a preference-based model, students who have other commitments, such as employment or carer responsibilities, or who are returning or living overseas during the timetabling period, aren’t disadvantaged by their limited availability. When allocating class timetables, MyTimetable also takes into consideration factors such as class size limits and potential clashes to ensure all students are equally accommodated. Further information is available on the web at https://students.unimelb.edu.au/admin/class-timetable Stop 1: Connecting Students and Services Stop 1 is here to provide you with a range of support services throughout your university degree, from help with enrolment, administration and wellbeing to advice on building your skills and experiences. https://students.unimelb.edu.au/stop1 Academic Skills Academic Skills offers a range of workshops and resources to help you with study skills including researching, writing and referencing, presentation skills and preparing for exams. Visit their website via http://services.unimelb.edu.au/academicskills. 10 Service Finder The University of Melbourne offers one of the most comprehensive student support networks in Australia. Use this site to locate a wide range of services http://services.unimelb.edu.au/finder Student Counselling Students attend counselling to talk about personal, emotional, or mental health issues which might be affecting their study and life. The University’s Counselling and Psychological Services (CAPS) provides free, confidential, short-term professional counselling to currently enrolled students and staff. https://services.unimelb.edu.au/counsel/individual Student Equity and Disability Support Student Equity and Disability Support provides services for students who need ongoing support with their studies. They understand that adjustments to learning and assessment are sometimes required to allow all students to reach their full potential. Learn more about the services provided, how to find support and how to register for assistance. http://services.unimelb.edu.au/student-equity University of Melbourne Library Services As well as holding an extensive collection of books, ebooks, digital media and periodicals, library staff provide research guidance and support for students. http://library.unimelb.edu.au/ These Business and Economics Library Guides have been designed specifically for Faculty of Business and Economics staff and students. http://unimelb.libguides.com/sb.php?subject_id=80310 Policy Alternative Exam Arrangements (AEA) The definition of and eligibility requirements for alternative exam arrangements (AEA) can be found via http://students.unimelb.edu.au/admin/alternate . Assessment and Results Policy The University’s assessment policy provides a framework for the design, delivery and implementation of assessment of students in award and non-award courses and subjects. Assessment is designed to contribute to high quality learning by students, and to allow for quality assurance and the maintenance of high academic standards. https://policy.unimelb.edu.au/MPF1326 Assignment Extension Requests for an assignment extension should be submitted here: http://go.unimelb.edu.au/yh9n. 11 Before completing this form, please read the Assignment Extension Policy, which can be found at: http://policy.unimelb.edu.au/MPF1326#section-4.37 Exam Policy The University requires that you are available for the entire examination period. Please see the University's Principal Dates via https://www.unimelb.edu.au/dates#2020 for the full annual calendar. Supplementary exams will not be provided in cases of absence during the examination period unless the absence is due to serious illness or other serious circumstances and a Special Consideration application is submitted and approved. Information on Calculators in Examinations Effective from 1 January 2017, the approved calculator for all subjects is the Casio FX82 (any suffix). No equivalent models of calculators will be permitted in exams. You are required to purchase your own calculator and are responsible for ensuring your calculator is in good working order with fresh batteries. Plagiarism and Collusion Plagiarism (failure to cite your sources correctly and completely) and collusion (unauthorised collaboration with another person to prepare an assessment task) are considered academic misconduct and attract severe penalties. More information is available on the University’s Academic Integrity website via http://go.unimelb.edu.au/rha6. Special Consideration As a student, you may experience extraordinary or unusual circumstances, or ongoing circumstances that adversely affect your academic performance. The University has policies in place to support students who are experiencing academic disadvantage. For more information, visit http://students.unimelb.edu.au/admin/special.
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