ECON 4340 FALL 2019 Financial Markets

Theory of Financial Markets

Monroe Hall: Room 262 

Email: profetb@virginia.edu; Phone: 434 924-4054

Office Hours: Tues/Thurs 11-12 AM in Monroe Hall, Room 262  (Wednesday 11-12 is a possibility, but only if the student arranges a meeting at least the day prior)

Class will meet on Tuesdays and Thursdays from 9:30 AM until 10:45 AM in Minor Hall 125

Main Topics Covered In This Course Are:

1. Modern Portfolio Theory
2. Fixed Income Markets
3  Leverage, Corporate Balance Sheets, Buyouts
4. Alternative Assets

 Schedule:

Our first class meeting of the Fall Semester will be on Tuesday, August 27th, 2019. The last class of the semester will be held on Tuesday, December 10th, 2019. The final examination will be held on Monday, December 10th.  The last scheduled office hours will be held on Tuesday, December 3rd from 11-12 in Monroe 262.

First Class, Aug 27, 2019: Introduction to Financial Markets

Reading: First Six Chapters of Burton-Koro, pages 1 – 85

Second Class, Aug 29, 2019: Key Concepts

Third Class, Sept 3, 2019: Markowitz and the Concept of an Asset

Fourth Class, Sept 5, 2019: Mean-Variance Theory, Part I

Fifth Class, Sept 10, 2019: Mean-Variance Theory, Part II

Sixth Class, Sept 12, 2019: Tobin Amends Mean-Variance Theory

Seventh Class, Sept 17, 2019: The Capital Asset Pricing Model (CAPM)

Class on September 19th is Cancelled

Eighth Class, Sept 24, 2019: Applications of CAPM, Review for 1st Mid-Term

First Mid-Term Examination:  Thursday, September 26, 2019 (Covers Chapters 1-6 in Burton-Koro, pp. 1-85)

Reading: Chapters 7 – 10 of Burton-Koro, pages 86 – 142

Ninth Class, Oct 1, 2019: Arbitrage Pricing Theory

Tenth Class, Oct 3, 2019: Finite State Theory, Part I

Eleventh Class, Oct 10, 2019: Finite States, Part II

Twelfth Class, Oct 15, 2019: Valuation, Part I

Thirteenth Class, Oct 17, 2019: Valuation, Part II

Readings: Chapters 11, 12 and 13

Fourteenth Class Oct 22, 2019: Debt Vs Equity; Bankruptcy

Fifteenth Class, Oct 24, 2019: US Treasury Debt: Part I

Sixteenth Class Oct 29, 2019: Lecture by Jane Buchan, Martlet Asset Mgt

Seventeenth Class, Oct 31, 2019: US Treasury Debt: Part II

Eighteenth Class, Nov 5, 2019: US Treasury Debt: Part III

Second Mid-Term Examination: Thursday, Nov 7, 2019 (Covers Chapters 7-12 in Burton-Koro and Classes starting October 3 through and including October 24)

Readings: Chapters 14, 15 and 16

Nineteenth Class, Nov 12, 2019: The Corporate Bond Market

Twentieth Class, Nov 14, 2019: The ABS Market

Readings: Chapters 17 and 19

Twenty-First Class, Nov 19, 2019: Futures and Forwards

Twenty-Second Class, Nov 21, 2019: Options

 

 

 

 

 

 

{The Second Mid-Term will cover Chapters 7-12 in Burton-Koro and lectures starting with October 3rd and ending on October 24th}

Second Mid-Term Examination: Thursday, November 7, 2019

Tuesday, December 10, 2019:  Final Examination, 2PM – 5 PM in Minor Hall 125

Reading Materials:

Note:  It will be assumed from the first lecture forward that all students have read Malkiel’s “Random Walk Down Wall Street.”  If you have not read Malkiel, then read it as soon as possible.

Random Walk Down Wall Street, by Burton Malkiel (this book should be read during the summer prior to the first day of class, which is Tuesday, August 28th, 2018)

Main Required Readings: 

Financial Markets: In Theory and Practice, by Edwin T Burton and Michael Koro, 2019

The following books are suggested (for those who really want to go far beyond this course):

Investment Science, by David Luenberger [Oxford, 1998]  {this is a very mathematical treatment of modern finance and will only be readable by mathematically experienced students}

Security Analysis, by Benjamin Graham and David Dodd [McGraw Hill, 1934 Edition] {This is the bible for value investors}

The Following Are Classic Articles in Finance That Will Be Referenced in Lecture:“Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk,” by William F. Sharpe, Journal of Finance, September, 1964

“Risk, Return and Equilibrium: Some Clarifying Comments,” by Eugene F. Fama, Journal of Finance, 1968.

Websites relevant to US Treasury Market:

For definition of bills, notes, bonds: http://www.treasurydirect.gov/indiv/products/products.htm

For answering questions about who owns the national debt in the US: http://www.treasurydirect.gov/govt/reports/pd/mspd/2018/2018_jul.htm

Information about upcoming US treasury auctions (over the next six months or so): http://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/documents/auctions.pdf

General location of debt information at the US treasury: http://www.treasurydirect.gov/NP/debt/current

Debt to GDP and other economic information (in time series format and graphic format), Federal Reserve Bank of St. Louis research department:

http://research.stlouisfed.org/fred2/release?rid=263

History of Treasury Auctions and Upcoming Treasury Auction Schedule: https://www.treasurydirect.gov/instit/annceresult/annceresult.htm

 Websites for Mathematical Terms

Mean

Variance

Covariance

Correlation_Coefficient
 

There will be two mid term examinations and one final examination,with a weighting of 30/30/40 with the final amounting to 40 percent. The final examination is cumulative. The final examination is scheduled for Tuesday, December 10, 2019 beginning at 2 PM and ending at 5 PM.  The examination will be held in Maury Hall 209. No examination may be skipped without a bona-fide excused absence (illness, etcetera).  There is no option available for missing exams. There will be grading reviews held for each of the two mid term examinations (the final examination cannot be reviewed except for numerical mistakes in adding up the grade). The grading reviews for mid term exams are normally a two hour office period held within ten days after the exams have been distributed back to students in class. It is the student’s responsibility to pick up their exam in class or arrange to pick it up at a later date. In order to have an exam reviewed, the student must show up with their exam in hand at the review. If a student cannot attend the review session, they must contact the grader prior to the review office hours and arrange an alternate date for the review.

Exam Schedule:

Examination I – Thursday, September 26, 2019

Examination II – Thursday, November 7, 2019

Final Examination – Tuesday, December 10, 2019 2PM – 5PM, Minor Hall 125

Please Note: If you cannot make the examinations as scheduled, please do not take this course. We do not give make-up examinations. If you are unable to take the final on time as scheduled, you will, at best, receive an incomplete for this course. There are no exceptions.