Postgraduate taught 

Investment Fund Management MSc

Economic Fundamentals And Financial Markets ECON5005

  • Academic Session: 2019-20
  • School: Adam Smith Business School
  • Credits: 20
  • Level: Level 5 (SCQF level 11)
  • Typically Offered: Semester 2
  • Available to Visiting Students: No

Short Description

The aim of this course is to outline how macroeconomics fundamentals influence asset returns and asset prices.

The point of departure of the baseline Capital Asset Pricing Model (CAPM) is to postulate that the returns on stocks follow some exogenous probability distribution; the point of departure of the Black-Scholes analysis of option prices is that the price of the underlying share of stock follows some exogenous stochastic process.

More generally, the standard theory of finance starts by postulating some exogenous stochastic process for the dividends or the prices of some interesting financial asset. The aim of this course is to analyse where these postulated processes are coming from. Indeed, although some financial series can be represented quite adequately, over some limited timespan, by an appropriate exogenous process, all financial series will eventually exhibit breaks. One benefit of this analysis is that it can help us identify and predict these break points.

Timetable

10 weekly 2-hour lectures plus 5 hours of tutorials

Requirements of Entry

Please refer to the current postgraduate prospectus at: http://www.gla.ac.uk/postgraduate/ 

Assessment

A one-hour in-course examination (25% of final grade for course) and a two-hour end-of-course examination (75% of final grade for course).

Main Assessment In: April/May

Course Aims

The aim of this course is to outline how macroeconomics fundamentals influence asset returns and asset prices.

 

The point of departure of the baseline Capital Asset Pricing Model (CAPM) is to postulate that the returns on stocks follow some exogenous probability distribution; the point of departure of the Black-Scholes analysis of option prices is that the price of the underlying share of stock follows some exogenous stochastic process.

 

More generally, the standard theory of finance starts by postulating some exogenous stochastic process for the dividends or the prices of some interesting financial asset. The aim of this course is to analyse where these postulated processes are coming from. Indeed, although some financial series can be represented quite adequately, over some limited timespan, by an appropriate exogenous process, all financial series will eventually exhibit breaks. One benefit of this analysis is that it can help us identify and predict these break points.

Intended Learning Outcomes of Course

By the end of this course, students will be able to:

 

■ employ dynamic programming techniques to calculate equilibrium price allocations 

■ master dynamic system solution techniques and employ them to derive the time paths of economic and finance aggregates

■ identify the role the financial sector plays in the economy at large, both in terms of resource allocation under uncertainty, trading of risk, and capital accumulation

■ calculate the fundamental prices of basic financial assets, such as shares of stock, using state-of-the art techniques such as q-theory, real asset theory and monopolistic economic profit theory,

■ make predictions about stock market price indices based on the market fundamentals implied by the previously mentioned theories

■ understand the phenomena of price bubbles, a situation in which the actual price of an asset is different from its fundamental price, and the implication of these bubbles on the dynamic of the asset price,

■ identify macroeconomic risk and understand its implications for financial investment such as in the Bansal-Yaron economy.

Minimum Requirement for Award of Credits

Students must submit at least 75% by weight of the components (including examinations) of the course's summative assessment.