FINANCIAL ECONOMICS - 2

This is a Core course of the Master in Economics and Finance, curriculum Finance. The course provides core theory of portfolio management and capital markets. Topics include functions and operations of capital markets, analysis of consumption-investment decisions of investors, portfolio theory, pricing models of risky assets, theory of efficient markets, as well as financial crisis, financial investment, alternative investments and long term investments. The course provides a theoretical foundation of finance and its applications.

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;
1.3 understending of the causes of financial crises and the role of long term investors (Private and Pubblic)
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 Excel or other programming languages such as R, Stata, Gretel or Matlab to determine the efficient border.
2.4 Use Excel or other programming languages such as R, Stata or Matlab to estimate the beta of shares or equity portfolios

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.

Financial mathematics
Basics of interest rates; separability. Annuities. Amortization of a debt.
References:
S.Romagnoli, “Mathematical Finance. Theory”, Esculapio, edition no. 2, 2016, chapters 1, 2, 3 (only p. 82-103), 7.

Statistics
Exploratory data analysis (univariate distributions, location and variability summaries, graphical representations). Probability (interpreting probability, probability rules, univariate random variables,
law of large numbers and central limit theorem). Basic techniques of statistical inference (point and interval estimation, hypothesis testing)
References
Newbold P., Carlson W.L., Thorne B., Statistics for Business and Economics, 8th ed. Pearson, 2013, ch. 1-10.
Levine D.M., Krehbiel T.C., Berenson M.L., Business Statistics, A first course, 6th ed., ch. 1-9.
Ross S.M., Introductory Statistics, 3rd ed. Elsevier, ch. 1-3, 7-9, 12.

Students should also be familiar with basic concepts of Microeconomics, Macroeconomics, and Math.

Part I:
- Introduction: Types of Equity Securities and Their Characteristics/Equity Markets: Characteristics and Institutions
- Equity Market Valuation and Return Analysis
- Standard portfolio selection problem and mean-variance approach
- Equity Portfolio Benchmarks
- The Capital Asset Pricing Model (CAPM).
- The Arbitrage Pricing Theory (APT)
- Equity Portfolio Management Strategies
- The Investment Policy Statement
- Modern Portfolio Management Concepts/Equity Portfolio Management Strategies
- Asset Allocation
- Performance Evaluation
- ETF and Structured products

Part II

- Financial crisis
- Management of Institutional and Individual/Family Investor Portfolios
- Economic Analysis and Setting Capital Market Expectations
- Private Equity/Venture Capital Valuation
- Types of Alternative Investments and Their Characteristics/Hedge Funds Strategies
- Fintech

- Bodie, Kane and Markus (2014), Investments, McGraw-Hill

Assessment consists in a written exam of 90 minutes. The exam consists of about 10 multiple choice items plus two exercises and/or open-ended questions. The two questions or exercises could be substituted by two case studies. The multiple choice items assess students’ knowledge and understanding of the topics included in the program. The two questions aims to investigate students’ ability to apply the theoretical framework to real cases. 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. Oral exams are not possible.

a) Teachers’ frontal lectures;
b) Case studies
c) Experts testimonial

English

See course website on Moodle.

written

This subject deals with topics related to the macro-area "Human capital, health, education" and contributes to the achievement of one or more goals of U. N. Agenda for Sustainable Development