This module first examines economic theories of financial market behaviour and discusses their empirical relevance. The topics may include the micro-foundations of financial economics; portfolio investment decisions, e.g. the Mean-Variance model and Capital Asset Pricing Model (CAPM); more complex pricing models, such as the consumption-based CAPM and Arbitrage Pricing Theory (APT).
The module then deals with the theoretical foundations of why banks exist and how they operate, and of why and how banks are regulated. The topics may include the theory of financial intermediation, securitization and other lending techniques, deposit contracts and insurance, bank regulation and supervision; particular attention is paid to recent global developments in banking and bank regulation.
Learning Outcomes
By the end of the module students should be able to:
demonstrate systematic knowledge and understanding of the microeconomic basis of financial economics;
analyse the behaviour of asset markets and prices using theoretical models and critically evaluate their empirical implementation;
explain the theoretical foundations of financial intermediation and critically evaluate the current regulatory framework faced by banks.