ECON 2508 - Financial Economics II

North Terrace Campus - Semester 2 - 2015

This course is designed to provide both a self contained study of the principles of financial economics, and a bridge between courses such as International Financial Institutions and Markets I or Business Finance II and third year finance courses. 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, theories of the term structure of interest rates, the dividend discount and price-earnings models of share valuation, 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 School of Economics
    Term Semester 2
    Level Undergraduate
    Location/s North Terrace Campus
    Units 3
    Contact Up to 3 hours per week
    Available for Study Abroad and Exchange Y
    Incompatible ECON 2012
    Assumed Knowledge CORPFIN 2006 or ECON 1009
    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 between courses such as International Financial Institutions and Markets I or Business Finance II and third year finance courses. 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, theories of the term structure of interest rates, the dividend discount and price-earnings models of share valuation, 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: Dr Steven Hail

    Office hours: To be advised

    Office location: Nexus 10, Level 3, Room 3.34
    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 Have an understanding of and ability to discuss critically the efficient markets theory of financial markets and behavioural finance
    2 Have an understanding at an introductory level of quantitative methods in finance
    3 Have an understanding of risk aversion in the context of utility theory
    4 Have an understanding and ability to discuss critically portfolio theory, the Capital Asset Pricing Model and multi-factor asset pricing models
    5 Have the ability to apply the theory of bond pricing, duration and convexity
    6 Have the ability to apply theories of the term structure of interest rates
    7 Have the understanding of financial instability and crisis
    8 Continuing development of good inter-personal and communication skills is widely recognised as important for all graduates. This course specifically seeks to develop students’ abilities to contribute actively to discussions in tutorial groups
    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)
    Knowledge and understanding of the content and techniques of a chosen discipline at advanced levels that are internationally recognised. 1-7
    The ability to locate, analyse, evaluate and synthesise information from a wide variety of sources in a planned and timely manner. 2, 7
    An ability to apply effective, creative and innovative solutions, both independently and cooperatively, to current and future problems. 4
    Skills of a high order in interpersonal understanding, teamwork and communication. 1-7
    A proficiency in the appropriate use of contemporary technologies. 4
    A commitment to continuous learning and the capacity to maintain intellectual curiosity throughout life. 1-7
  • Learning Resources
    Required Resources
    Bodie, 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 Resources
    Additional materials will be recommended on the MyUni site.
    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 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.
    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
    Week  Lecture Topic    Essential Reading              Tutorials
    1 Introduction to Financial Economics   Bodie et al Cha 1&2  
     No Tutorial

    2 Risk and Risk Aversion   Bodie et al Cha 5  
     Set 1

    3 The Capital Allocation Decision   Bodie et al Cha 6  
     Set 2

    4 Optimal Risky Portfolios   Bodie et al Cha 6  
     Set 3

    5 The Capital Asset Pricing Model and its Limitations   Bodie et al Cha 7  
     Set 4

    6 Multi-Factor Models of Risk and Return   Bodie et al Cha 7  
     Set 5

    7 The (In)Efficient Markets Hypothesis   Bodie et al Cha 8  
     Set 6

    8 Behavioural Finance and Prospect Theory   Bodie et al Cha 8  
     Set 7

    9 Bond Yields and Interest Rate Risk   Bodie et al Cha 9  
     Set 8

    10 Managing Bond Portfolios   Bodie et al Cha 10  
     Set 9

    11 Macroeconomic and Industry Analysis   Bodie et al Cha 12  
     Set 10

    12 Financial Instability   Reading provided via myUni  
     Set 11

  • 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
    Assignment 1 (Individual Assignment)
    Weighting: 10% (redeemable in final exam)
    Published in Week 1, this will be a mainly technical assignment.
    To be handed in by the end of Week 4
    To be returned to you by the end of Week 6
    Learning Objective 2, 3

    Assignment 2 (Group Assignment)
    Weighting: 15% (redeemable in final exam)
    Published in Week 4. It will involve the use of Solver to identify an ‘efficient’ portfolio of risky assets. Students will be required to watch a video which will be published on MyUni explaining the process of using Solver. The main part of the assignment will involve the application of utility theory, portfolio theory and the theory of portfolio selection.
    To be handed in by the end of Week 7
    To be returned to you by the end of Week 9
    Learning Objective 4

    Online Tests Total
    Weighting: 15% (redeemable in final exam)
    Online test 1: Weighting 5% (redeemable in final exam)
            Week 5
            15 multiple choice questions
            40 minutes duration
            Covers topic 1 – 4
            Learning Objectives 2, 3
    Online test 2: Weighting 5% (redeemable in final exam)
            Week 9
            15 multiple choice questions
            40 minutes duration
            Covers topic 5 – 8
            Learning Objectives 1, 4
    Online test 3: Weighting 5% (redeemable in final exam)
            Week 12
            15 multiple choice questions
            40 minutes duration
            Covers topic 9 – 11
            Learning Objectives 5, 6, 7

    Final Examination
    Weighting: 60%
    Supervised, Closed Book, Graded Format:
    The exam will comprise some short answer questions and longer written/problem questions. A mock examination will be posted on Myuni.
    Date: Please refer to the examination timetable for details of exam location and time.
    Learning Objectives 1-7 (with an emphasis on Objectives 5, 6 and 7)
    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 & 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.
    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.

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