ECON 2508 - Financial Economics II

North Terrace Campus - Semester 1 - 2023

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.

  • General Course Information
    Course Details
    Course Code ECON 2508
    Course Financial Economics II
    Coordinating Unit 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 Staff

    Course Coordinator: Associate Professor Mandar Oak

    Lecturer (Weeks 1-6): Assoc Prof Mandar Oak

    Lecturer (Weeks 6-12): Prof Ralph Bayer
    Course Timetable

    The full timetable of all activities for this course can be accessed from Course Planner.

  • Learning Outcomes
    Course Learning Outcomes

    On successful completion of this course, students will be able to:

    1. Apply utility theory to describe and analyze investment or saving decisions under risk aversion.
    2. Describe the role of contingent claims in providing insurance against risky returns.
    3. Describe the concept of equilibrium asset pricing.
    4. Describe examples of how informational asymmetries between market participants can result in inefficient market outcomes.
    5. Appreciate how economic models are used as caricatures of economic realities in order to reduce complexity and permit transparent theories to be built that help people think about how they can affect their environment in a positive manner.
    6. Explain why mathematics can be useful in communicating economic thoughts with peers and colleagues.
    7. Be empathetic towards economic policymakers who are doing their best to bring about, what they feel to be, positive change in the world.
    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)

    Attribute 1: Deep discipline knowledge and intellectual breadth

    Graduates have comprehensive knowledge and understanding of their subject area, the ability to engage with different traditions of thought, and the ability to apply their knowledge in practice including in multi-disciplinary or multi-professional contexts.

    1-5

    Attribute 2: Creative and critical thinking, and problem solving

    Graduates are effective problems-solvers, able to apply critical, creative and evidence-based thinking to conceive innovative responses to future challenges.

    1-6

    Attribute 3: Teamwork and communication skills

    Graduates convey ideas and information effectively to a range of audiences for a variety of purposes and contribute in a positive and collaborative manner to achieving common goals.

    5-6

    Attribute 4: Professionalism and leadership readiness

    Graduates engage in professional behaviour and have the potential to be entrepreneurial and take leadership roles in their chosen occupations or careers and communities.

    5-7

    Attribute 5: Intercultural and ethical competency

    Graduates are responsible and effective global citizens whose personal values and practices are consistent with their roles as responsible members of society.

    7

    Attribute 8: Self-awareness and emotional intelligence

    Graduates are self-aware and reflective; they are flexible and resilient and have the capacity to accept and give constructive feedback; they act with integrity and take responsibility for their actions.

    5-7
  • Learning Resources
    Required Resources
    There is no required textbook for this course.

    Course learning material will be made available in the Course MyUni site during the course.
    Online Learning
    A 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 should prepare students for their assignments and exams.

    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.

    Workload

    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
    • The Consumer Choice Problem
    • Risk and Risk Aversion
    • Decision Making Under Risk
    • Contingent Claims and Insurance
    • Complete and Incomplete Markets
    • The Stock Market
    • Consumption-Based Asset Pricing
    • The Demand for Information
    • Adverse Selection and Exchange
    • Information and Prices
    ** This list of topics and their ordering are tentative and subject to change based on pace of class learning
  • Assessment

    The University's policy on Assessment for Coursework Programs is based on the following four principles:

    1. Assessment must encourage and reinforce learning.
    2. Assessment must enable robust and fair judgements about student performance.
    3. Assessment practices must be fair and equitable to students and give them the opportunity to demonstrate what they have learned.
    4. Assessment must maintain academic standards.

    Assessment Summary
    Assessment Type % of Overall Grade CLO
    Individual Assignments
    Two assignment worth 12.5% each, due in weeks 4 and 11
    25% 1-5
    Midterm Exam (held in class in week 6) 25% 1-5
    Final Exam (held as per the central timetable) 50% 1-6


    ** This assessment summary is tentative and any changes will be reflected in the Course MyUni site at the beginning of the course.

    Assessment Related Requirements
    The minimum grade to pass this subject is a mark of 50% overall. There are no separate requirements for individual assessments.
    Assessment Detail
    Assessment details are given in the Assessment Summary above.
    Submission
    Assignment 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
    Late submission of assessment will not be accepted and will lead to zero marks.
    Course Grading

    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.

  • Student Feedback

    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.

  • Student Support
  • Policies & Guidelines
  • Fraud Awareness

    Students are reminded that in order to maintain the academic integrity of all programs and courses, the university has a zero-tolerance approach to students offering money or significant value goods or services to any staff member who is involved in their teaching or assessment. Students offering lecturers or tutors or professional staff anything more than a small token of appreciation is totally unacceptable, in any circumstances. Staff members are obliged to report all such incidents to their supervisor/manager, who will refer them for action under the university's student’s disciplinary procedures.

The University of Adelaide is committed to regular reviews of the courses and programs it offers to students. The University of Adelaide therefore reserves the right to discontinue or vary programs and courses without notice. Please read the important information contained in the disclaimer.