FINANCIAL ECONOMICS - 1

This is the first part of a compulsory 12-ECTS course. This is one of the main courses that characterize the Master's Degree in Economics, Finance and Sustainability. The 12-ECTS course on the whole has common objectives, learning outcomes, contents and teaching methods that are described as follows. The course aims to provide financial and economic skills related to the economy of markets and financial investments. Particular attention is paid to the functioning of the financial markets, to the theory of the portfolio and to the formation of the prices of the basic financial instruments and to the management of financial investments. The course is divided into two parts. In the first part of this course taught in the third period, the course focuses on portfolio theory and on the formation of the prices of financial instruments. The second part taught in the fourth period focuses on investment management, performance measures and innovative finance. The discussion of the various topics will be addressed to the understanding of the mechanisms that lead to the determination of the general equilibrium in the financial markets and to the application problems in the choice of financial investments. Particular attention will be given to the use of finance theory for the resolution of operational problems. For this reason during the course will be discussed simple case studies in order to apply the acquired knowledge.

The instructional goal of the 12-ECTS course is acquiring the knowledge and competences to understand, manage and evaluate the issues and the quantitative models related to financial markets and valuation of financial assets and portfolio management
In detail:
1. Knowledge and understanding
1.1 - understanding of economic / financial phenomena concerning financial markets and investment choices with particular attention to portfolio management
1.2 - Understanding of the mechanisms of price formation and of the returns of the shares starting from the theory of the portfolio through the classical pricing models such as the Capital Asset Pricing Model and the Arbitrage Pricing Theory

2. Ability to apply knowledge and understanding
2.1 Identify the sources of information necessary to support investment choices
2.2 Use and analyze financial databases such as Bloomberg to acquire time series of financial asset prices and then determine the yield, volatility and expected correlation
2.3 Use statistical software to determine the efficient frontier
2.4 Use statistical software to test leading asset pricing models

3. Ability to make judgements:
3.1 to interpret the functioning of financial markets in the light of investment choices and macroeconomic variables
3.2 to recognize the implications that portfolio choices have on price formation
3.3 To identify and evaluate risk factors and on potential or presumed arbitrage opportunities.

Possess the basic knowledge indicated in the personal preparation requirements to enroll in the Degree in Economics, Finance and Sustainability: https://www.unive.it/web/fileadmin/user_upload/cdlm/em15/doc/personale-preparazione/EM15_personale_preparazione_e_contenuti_della_prova_di_verifica.pdf

It also requires basic knowledge of the use of Excel and coding.

First module
- Basic concepts
- Portfolio theory
- Factor models
- CAPM
- APT
- Empirical tests of asset pricing models
- Market efficiency
- Equity valuation

Second module
- Analysis of the investment process
- Portfolio allocation
- Performance indicators
- Style analysis
- Performance attribution
- Modern portfolio management and active management
- Additional topics (hedge funds, ETFs, FinTech, etc.)

- Class notes
- Main textbook: Bodie, Kane and Markus (2023), Investments, McGraw-Hill
- Further useful textbooks:
John H. Cochrane (2005). Asset Pricing. Princeton University Press
Roy E. Bailey (2005). The Economics of Financial Markets. Cambridge University Press

- Selected readings and other material will be made available during the course through the Moodle page of the course

Assessment consists in a written exam of 90 minutes. The exam consists of multiple choice questions plus two exercises/open questions. The multiple choice items assess students’ knowledge and understanding of the topics included in the program. Alternatively, it is possible to take two partial exams during the course and hand in two group assignments. In order to pass the exam, the final mark should be at least 18/30. The use of books, notes and electronic devices (with the only exception of a calculator) is not allowed during the examination.

written

The instructor is responsible for ensuring the authenticity and originality of all examinations and coursework. In cases of suspected academic misconduct, an additional on-site assessment may be required during the exams, which may differ from the standard format.

A. Marks in the 18-22 range will be awarded in the presence of:
- sufficient knowledge and ability to apply understanding of the main course content;
- limited ability to collect and/or interpret data and information relating to financial markets, financial instruments and asset pricing models, formulating independent judgements;
- sufficient communication skills, particularly in the use of specific terminology relating to the functioning of financial markets, the risk-return relationship, diversification and the pricing of financial assets.

B. Marks in the 23-26 range will be awarded in the presence of:
- fair knowledge and ability to apply understanding of the main course content;
- fair ability to collect and/or interpret data and information relating to financial markets, financial instruments and asset pricing models, formulating independent judgements;
- fair communication skills, particularly in the use of specific terminology relating to the functioning of financial markets, the risk-return relationship, diversification and the pricing of financial assets.

C. Marks in the 27-30 range will be awarded in the presence of:
- good or excellent knowledge and ability to apply understanding of the course content;
- good or excellent ability to collect and/or interpret data and information relating to financial markets, financial instruments and asset pricing models, formulating independent and adequately reasoned judgements;
- fully appropriate communication skills, particularly in the rigorous use of specific terminology relating to the functioning of financial markets, the risk-return relationship, diversification and the pricing of financial assets.

D. Honours will be awarded in the presence of excellent knowledge and ability to apply understanding of the course content, as well as excellent analytical, interpretative, independent judgement and communication skills.

The course mainly follows a conventional teaching approach combined with group case studies. The conventional approach aims to provide students with the tools to analyze and apply the knowledge and skills they acquire. The case studies are designed to develop the use of selected databases, support the application of acquired knowledge, and assess students’ level of critical judgment.

See Moodle page