This module examines economic theories of financial market behaviour and discusses their empirical relevance. The first part of the module is focused on the micro foundation of the financial economics: choice under uncertainty, expected utility theorem, measuring risk and risk aversion, the efficiency of financial markets. The second part of the module is based on the Portfolio Investment Decisions, mainly the Mean-Variance model of Markowitz and the Capital Asset Pricing Model (CAPM). The third part of the module explores most complex pricing model as consumption-based CAPM, Arbitrage Pricing Theory (APT) and Arrow-Debreu Asset Pricing Theory.
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