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AF255: Financial Markets

Session: Two
Prerequisites: Introductory Finance and elementary quantitative methods

Dr Christian Julliard
Dr Andrea Tamoni

This course is about characteristics of financial markets and optimal investment strategies with a strong focus on asset pricing, active portfolio management and risk immunization, portfolio performance evaluation, the predictability of returns, and behavioral finance. We will also consider the recent developments in cross-sectional asset pricing (conditional models, multi-factor models, consumption-based models). Its aim is to provide a thorough understanding of both market finance and operations of financial markets, focusing on equity and bond markets. 

The topics covered in this course include:

  • Time-Varying Expected Returns and Market Efficiency
  • Returns to fundamental analysis;
  • Optimal portfolio selection (asset allocation and security selection);
  • Risk and portfolio performance evaluation;
  • Asset pricing (CAPM and APT);
  • Performance of the C-CAPM, the equity premium and risk-free rate puzzles;
  • Anomalies (size effect, value premium, momentum, Betting-Against-Beta);
  • Historical performance of mutual funds and hedge funds;
  • Optimal investment strategy when privately informed;
  • Active portfolio management, insurance, and immunisation;
  • Organisation of financial markets and exchanges;
  • Determinants of bid-ask spreads;
  • Behavioral finance;
  • Bond portfolio management and immunisation.

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Text

Z. Bodie, A. Kane, and A. J. Marcus, Investments (9th edition), McGraw-Hill International Edition (2011).
W.F. Sharpe, Investors and Markets: Portfolio Choices, Asset Prices, and Investment Advice, Princeton Lectures in Finance (2008).

These textbooks are supplemented by selected chapters from finance and investments textbooks, and relevant articles published in the finance literature.

Lectures: 36 hours    Classes: 12 hours
Assessment: Two written examinations

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