ECON 2508 - Financial Economics II
North Terrace Campus - Semester 2 - 2016
General Course Information
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 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 to higher level courses in economics and finance, including 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, 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 OutcomesOn 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) 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)
1-7) 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
1-7) 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
4) 8) Career and leadership readiness
- technology savvy
- professional and, where relevant, fully accredited
- forward thinking and well informed
- tested and validated by work based experiences
2) 4) 5) 8) 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) 7) 8) 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
1) 5) 6) 7) 8)
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 ModesStudents 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 Lecture Topic Essential Reading Tutorials 1 Introduction to Financial Economics Bodie et al Cha 1&2
2 Risk and Risk Aversion Bodie et al Cha 5
3 The Capital Allocation Decision Bodie et al Cha 6
4 Optimal Risky Portfolios Bodie et al Cha 6
5 The Capital Asset Pricing Model and its Limitations Bodie et al Cha 7
6 Multi-Factor Models of Risk and Return Bodie et al Cha 7
7 The (In)Efficient Markets Hypothesis Bodie et al Cha 8
8 Behavioural Finance and Prospect Theory Bodie et al Cha 8
9 Bond Yields and Interest Rate Risk Bodie et al Cha 9
10 Managing Bond Portfolios Bodie et al Cha 10
11 Macroeconomic and Industry Analysis Bodie et al Cha 12
12 Financial Instability Reading provided via myUni
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 Element Weighting Course Learning Outcomes Individual Assignment 10% 2-3 Group Assignment 15% 4,8 On-Line Tests 15% 1-7 (as indicated below) Final Examination 60% 1-7 (and especially 5-7)
* Please note that the Course Learning Outcomes have been mapped into University Graduate Attributes above
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)
15 multiple choice questions
40 minutes duration
Covers topic 1 – 4
Learning Objectives 2, 3
Online test 2: Weighting 5% (redeemable in final exam)
15 multiple choice questions
40 minutes duration
Covers topic 5 – 8
Learning Objectives 1, 4
Online test 3: Weighting 5% (redeemable in final exam)
15 multiple choice questions
40 minutes duration
Covers topic 9 – 11
Learning Objectives 5, 6, 7
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 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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