ECON 2508 - Financial Economics II
North Terrace Campus - Semester 1 - 2020
General Course Information
Course Code ECON 2508 Course Financial Economics II Coordinating Unit School of Economics Term Semester 1 Level Undergraduate Location/s North Terrace Campus Units 3 Contact Up to 3 hours per week Available for Study Abroad and Exchange Y Assumed Knowledge ECON 1009 or ECON 1012 Quota A quota will apply Course Description This course is designed to provide both a self contained study of the principles of financial economics, and a bridge to higher level courses in economics and finance, including third year international finance. It includes a critical discussion of the efficient markets theory, an overview of quantitative methods in finance, considers risk aversion in the context of utility theory, examines portfolio theory, the Capital Asset Pricing Model and multi-factor asset pricing models, covers bond pricing, duration and convexity, behavioural finance theory, an introduction to the economics of financial crises, and introduces the top down approach to investment decisions. The emphasis is on a thorough coverage of modern finance theory as applied to investment analysis, balanced with a consideration of new developments in the discipline, and of the application of both old and new theoretical perspectives to understand the current environment for financial investment decisions.
Course Coordinator: Dr Steven HailOffice hours: To be advised
Office location: Nexus 10, Level 3, Room 3.34
The full timetable of all activities for this course can be accessed from Course Planner.
Course Learning Outcomes
On successful completion of this course, students will be able to:
- Apply utility theory to describe and analyze investment decisions under risk aversion.
- Describe and apply modern portfolio theory.
- Describe, apply and criticize single and multiple factor models of risk and return.
- Describe, apply, compare and criticize the efficient markets hypothesis and behavioural finance theory.
- Identify and describe the risks of managing portfolios of fixed income securities.
- Describe and explain the causes of financial instability and financial crises.
University Graduate Attributes
This course will provide students with an opportunity to develop the Graduate Attribute(s) specified below:
University Graduate Attribute Course Learning Outcome(s) Deep discipline knowledge
- informed and infused by cutting edge research, scaffolded throughout their program of studies
- acquired from personal interaction with research active educators, from year 1
- accredited or validated against national or international standards (for relevant programs)
1-6 Critical thinking and problem solving
- steeped in research methods and rigor
- based on empirical evidence and the scientific approach to knowledge development
- demonstrated through appropriate and relevant assessment
1-6 Teamwork and communication skills
- developed from, with, and via the SGDE
- honed through assessment and practice throughout the program of studies
- encouraged and valued in all aspects of learning
1-6 Career and leadership readiness
- technology savvy
- professional and, where relevant, fully accredited
- forward thinking and well informed
- tested and validated by work based experiences
1-6 Intercultural and ethical competency
- adept at operating in other cultures
- comfortable with different nationalities and social contexts
- Able to determine and contribute to desirable social outcomes
- demonstrated by study abroad or with an understanding of indigenous knowledges
1-6 Self-awareness and emotional intelligence
- a capacity for self-reflection and a willingness to engage in self-appraisal
- open to objective and constructive feedback from supervisors and peers
- able to negotiate difficult social situations, defuse conflict and engage positively in purposeful debate
Required ResourcesBodie, Drew, Basu, Kane and Marcus
Principles of Investments
McGraw Hill Higher Education, 2013
Students also require a financial calculator (or other calculator with financial functions). A model will be recommended by the lecturer during week one.
Recommended ResourcesAdditional materials will be recommended on the MyUni site.
Online LearningA number of links to additional readings will be posted on MyUni, alongside lecture recordings and other materials.
Learning & Teaching Activities
Learning & Teaching Modes
Students in this course are expected to attend all lectures throughout the semester plus one tutorial class each week. The problem-solving tutorials support the lectures, and prepare students for their mid-term and final examinations.
Tutorials will be held weekly commencing the second week of the semester. Membership of tutorial classes is to be finalised by the end of the second week of semester. Students wishing to swap between tutorial classes after this time are required to present their case to the tutor-in-charge, but should be aware that such a request may not be approved.
Tutorials are an important component of your learning in this course. The communication skills developed in tutorials by regularly and actively participating in discussions are considered to be most important by the School and are highly regarded by employers and professional bodies.
The information below is provided as a guide to assist students in engaging appropriately with the course requirements.The University expects full-time students (i.e. those taking 12 units per semester) to devote a total of 48 hours per week to their studies. This means that, for this course, you are expected to commit approximately 9 hours to private study, that is, study outside of your regular classes.
Learning Activities Summary
Week Essential Reading (Bodie etc) Course Plan Tutorials 1 Chapter 5
(Chapters 1-4 are also valuable revision)
An Introduction to Financial Economics No tutorials 2 Chapter 6 Risk and Risk Aversion Tutorial set 1 3 Chapter 7 The Capital Allocation Decision Tutorial set 2 4 Chapter 8 Optimal Risky Portfolios Tutorial set 3 5 Chapter 9
(The lectures will also draw on Chapter 10)
The Capital Asset Pricing Model and some of its limitations Tutorial set 4 6 Chapter 9
(The lectures will also draw on Chapter 10)
Multi-Factor Models (Arbitrage Pricing Theory) Tutorial set 5 7 Chapter 11 Rise and Partial Fall of the Efficient Markets Hypothesis Tutorial set 6 8 Chapter 12
(Some of this topic will be self study)
Rise of Behavioural Finance Tutorial set 7 9 Chapter 14
(The lectures will also draw on Chapter 16)
Bond Yields and Interest Rate Risk Tutorial set 8 10 Chapter 15 The Term Structure of Interest Rates Tutorial set 9 11 Online reading Minsky’s Financial Instability Hypothesis and Financial Crises Tutorial set 10 12 Finishing off and overview Tutorial set 11
The University's policy on Assessment for Coursework Programs is based on the following four principles:
- Assessment must encourage and reinforce learning.
- Assessment must enable robust and fair judgements about student performance.
- Assessment practices must be fair and equitable to students and give them the opportunity to demonstrate what they have learned.
- Assessment must maintain academic standards.
Assessment SummaryDue to the current COVID-19 situation modified arrangements have been made to assessments to facilitate remote learning and teaching. Assessment details provided here reflect recent updates.
Individual (technical) Assignment 1 10%
Assignment 2 - done as an individual, counting for 15%
Three in-course quizzes 15%
End of Course Multiple Choice Exam - 40 questions, covering whole course -20%
End of Course Short Questions Test (choice of two from four sets of short questions) - 20%
End of Course 2,000 word essay (it will be based on recent central bank policy) - 20%
Assessment Related RequirementsThe minimum grade to pass this subject is a mark of 50% overall. There are no separate requirements for individual assessments.
Assessment DetailAssessment details are given in the Assessment Summary above.
SubmissionAssignment submission details will be published on MyUni at the beginning of the course. Assignments will normally be marked and returned to students within 3 weeks of submission.
Late submission & absences
Missing a test will result in a zero score unless the lecturer is supplied (within 5 working days from the date of the test) with documentary evidence of the reason for non-attendance such as a medical certificate or letter from your employer. Problem sets and assignments submitted late will not be accepted unless accompanied by documentary evidence (as above). If a student misses a tutorial and has documentary evidence (as above) they should consult with their tutor who will adjust their marks accordingly. Note that merely being at work is not considered as reasonable grounds for missing a test or tutorial. A conference or interstate trip may be reason enough.
Grades for your performance in this course will be awarded in accordance with the following scheme:
M10 (Coursework Mark Scheme) Grade Mark Description FNS Fail No Submission F 1-49 Fail P 50-64 Pass C 65-74 Credit D 75-84 Distinction HD 85-100 High Distinction CN Continuing NFE No Formal Examination RP Result Pending
Further details of the grades/results can be obtained from Examinations.
Grade Descriptors are available which provide a general guide to the standard of work that is expected at each grade level. More information at Assessment for Coursework Programs.
Final results for this course will be made available through Access Adelaide.
The University places a high priority on approaches to learning and teaching that enhance the student experience. Feedback is sought from students in a variety of ways including on-going engagement with staff, the use of online discussion boards and the use of Student Experience of Learning and Teaching (SELT) surveys as well as GOS surveys and Program reviews.
SELTs are an important source of information to inform individual teaching practice, decisions about teaching duties, and course and program curriculum design. They enable the University to assess how effectively its learning environments and teaching practices facilitate student engagement and learning outcomes. Under the current SELT Policy (http://www.adelaide.edu.au/policies/101/) course SELTs are mandated and must be conducted at the conclusion of each term/semester/trimester for every course offering. Feedback on issues raised through course SELT surveys is made available to enrolled students through various resources (e.g. MyUni). In addition aggregated course SELT data is available.
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- Modified Arrangements for Coursework Assessment
- Student Experience of Learning and Teaching Policy
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