EC371-7-AT-CO:
Economic Analysis of Asset Prices
2023/24
Economics
Colchester Campus
Autumn Special
Postgraduate: Level 7
Future
Thursday 05 October 2023
Friday 15 December 2023
20
20 February 2024
Requisites for this module
(none)
(none)
(none)
(none)
(none)
The module begins with an overview of capital markets and explores limits to the predictability of asset price changes, together with concepts of asset market efficiency. Portfolio theories of asset selection under uncertainty are reviewed, with emphasis on mean-variance analysis. Mean-variance analysis is then adapted to construct the Capital Asset Pricing Model (CAPM). Concepts of arbitrage are examined, and applied to introduce Arbitrage Pricing Theory (APT) in theory and practice.
The module goes on to explore distinctive features of markets for bonds and fixed interest securities. The two main classes of derivatives' markets – for futures and options contracts – are then examined with a view to applications involving the underlying assets in each case.
The aims of this module are:
- To understand the impact of uncertainty of asset prices, with the implications for the efficiency of capital markets.
- To explore how it is possible to predict assets’ expected rates of return relative to the assets’ risks, going on to examine the relationships between futures and options prices and their underlying assets.
By the end of this module, students will be expected to be able to:
- Acquire an appreciation of how economic theories help to account for the determination of asset prices.
- Apply analytical reasoning to problems in asset pricing; to build simple models of asset markets based on those studied in the course; and to interpret the mathematics of these models in economic terms.
Transferable Skills
This module aims to contribute to the development of useful skills in the form of:
- Problem-solving, via the analysis of formal models in finance.
- Communication and literacy in the analysis of issues involving financial markets.
The module further supports employability skills in the form of:
- Awareness of the operation of financial markets in advanced economies.
- Clear, concise and well organised professional written work.
- Personal time management, target-setting to achieve the timely completion of exercises and tests.
While the topics covered are the same for both EC371-6-AU and EC371-7-AU, the differences between the two levels are that level 6 students are expected to have a background in undergraduate economic principles (especially microeconomic theory), while level 7 students would have completed an undergraduate degree (BA or BSc equivalent) but not necessarily with an emphasis on economic principles. This being so, level 6 students are expected to extend their knowledge of economic analysis in the context of financial markets, while level 7 students learn more about how financial markets can be analysed from the perspective of economic theory. (This is how the ‘learning outcomes’ differ in a nuanced way between the two levels.)
It is thus appropriate that the teaching and readings are the same for both groups: what differs is the manner in which students approach and respond to these resources. In this context for instance, students at level 6 are expected to display the skills acquired from their second year of study in the Department of Economics. Level 7 students might demonstrate a less formal knowledge of economics but would bring to their studies a broader knowledge of degree level work.
In order to enable students at each level to demonstrate their knowledge to their best advantage, the assessments (mid-term test and final examination questions) differ, not in the subject matter covered, but instead in the ways in which logical reasoning and economic analysis are applied to answer the questions. In recognising moreover that students are diverse in their range of abilities (at any level), the EC371 assessments provide opportunities for all students to express themselves to their best advantage. The assessment of the differences requires the exercise of academic judgment, of which the examiners are aware and take into account.
The module will be delivered via:
- 2 lectures per week
- One (optional) class per week
in one term.
The module will be delivered via:
- 2 lectures per week
- One (optional) class per week
in one term.
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Roy E. Bailey (2005a) ‘Asset markets and asset prices’, in
The economics of financial markets. Cambridge: Cambridge University Press, pp. 1–32. Available at:
https://search.ebscohost.com/login.aspx?direct=true&db=nlebk&AN=132340&site=ehost-live&ebv=EB&ppid=pp_1.
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Roy E. Bailey (2005e) ‘Predictability of prices and market efficiency’, in
The economics of financial markets. Cambridge: Cambridge University Press, pp. 56–82. Available at:
https://app.kortext.com/Shibboleth.sso/Login?entityID=https://idp0.essex.ac.uk/shibboleth&target=https://app.kortext.com/borrow/237680.
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Roy E. Bailey (2005f) ‘The capital asset pricing model’, in
The economics of financial markets. Cambridge: Cambridge University Press, pp. 143–165. Available at:
https://search.ebscohost.com/login.aspx?direct=true&db=nlebk&AN=132340&site=ehost-live&ebv=EB&ppid=pp_143.
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Roy E. Bailey (2005b) ‘Factor models and the arbitrage pricing theory’, in
The economics of financial markets. Cambridge: Cambridge University Press, pp. 183–199. Available at:
https://search.ebscohost.com/login.aspx?direct=true&db=nlebk&AN=132340&site=ehost-live&ebv=EB&ppid=pp_183.
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Roy E. Bailey (2005c) ‘Options markets I: fundamentals’, in
The economics of financial markets. Cambridge: Cambridge University Press, pp. 438–466. Available at:
https://search.ebscohost.com/login.aspx?direct=true&db=nlebk&AN=132340&site=ehost-live&ebv=EB&ppid=pp_438.
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Roy E. Bailey (2005d) ‘Options markets II: price determination’, in
The economics of financial markets. Cambridge: Cambridge University Press, pp. 467–493. Available at:
https://search.ebscohost.com/login.aspx?direct=true&db=nlebk&AN=132340&site=ehost-live&ebv=EB&ppid=pp_467.
The above list is indicative of the essential reading for the course.
The library makes provision for all reading list items, with digital provision where possible, and these resources are shared between students.
Further reading can be obtained from this module's
reading list.
Assessment items, weightings and deadlines
| Coursework / exam |
Description |
Deadline |
Coursework weighting |
| Exam |
Main exam: In-Person, Open Book, 120 minutes during January
|
| Exam |
Reassessment Main exam: In-Person, Open Book, 120 minutes during Early Exams
|
Additional coursework information
In each lecture, students are asked to think about a “Quick Question” on a topic covered in the lecture, with the answer explained at the end of the lecture and provided on the EC371 Moodle site. (The Quick Questions are formative, but not summative, assessment.)
In each lecture, students are asked to think about a “Quick Question” on a topic covered in the lecture, with the answer explained at the end of the lecture and provided on the EC371 Moodle site. (The Quick Questions are formative, but not summative, assessment.)
An exercise is provided for the class devoted to each topic: answers to the exercise questions are discussed in the class, with additional details provided on the EC371 Moodle site. (The exercises are formative, but not summative, assessment.)
A midterm test constitutes the summative coursework assessment for the module. Following the test answer guidelines are provided for each question on the EC371 Moodle site.
Exam format definitions
- Remote, open book: Your exam will take place remotely via an online learning platform. You may refer to any physical or electronic materials during the exam.
- In-person, open book: Your exam will take place on campus under invigilation. You may refer to any physical materials such as paper study notes or a textbook during the exam. Electronic devices may not be used in the exam.
- In-person, open book (restricted): The exam will take place on campus under invigilation. You may refer only to specific physical materials such as a named textbook during the exam. Permitted materials will be specified by your department. Electronic devices may not be used in the exam.
- In-person, closed book: The exam will take place on campus under invigilation. You may not refer to any physical materials or electronic devices during the exam. There may be times when a paper dictionary,
for example, may be permitted in an otherwise closed book exam. Any exceptions will be specified by your department.
Your department will provide further guidance before your exams.
Overall assessment
Reassessment
Module supervisor and teaching staff
No
No
No
No external examiner information available for this module.
Available via Moodle
No lecture recording information available for this module.
Economics
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