- Familiarize students with various financial instruments, financial markets and basic principles of asset pricing and risk management.
- Students will be familiar with financial terminology in English and Russian.
- Students will know how to form and diversify portfolios of assets, how to find expected returns and risks of assets and portfolios of assets.
- Students will be able to find fair prices of financial assets and make investment decisions.
- Students will know the notion of risk premium and models characterizing equilibrium risk premiums.
- They will also be familiar with the most popular asset-pricing anomalies and the basics of behavioral pricing.
- Be able to use different financial instruments for investment or hedging purposes
- know how to form and diversify portfolios of assets
- know how to find expected returns and risks of assets and portfolios of assets
- be able to find fair prices of financial assets and make investment decisions
- know the notion of risk premium and models characterizing equilibrium risk premiums
- be familiar with the most popular asset-pricing anomalies and the basics of behavioral pricing
- Financial markets and instrumentsDirect and indirect financing, their advantages and disadvantages, debt and equity instruments, money market instruments, capital market instruments, derivatives. Types of financial markets. Anglo-Saxon and German financial models.
- DiscountingFuture value, present value, discount rate, discount factor, net present value rule, annuity, perpetuity, valuing annuities and perpetuities with and without growth, return definitions: realized return, required return, fair return, hurdle rate, expected return, opportunity cost of capital, weighted average cost of capital, compound and simple interest rates, nominal and real interest rates.
- Bond marketBonds, coupons, discount bonds, consol bonds, convertible bonds, callable bonds, yield to maturity, coupon yield, valuation of bonds, duration, term structure of interest rates.
- Stock marketCommon and preferred stocks, dividends, cumulative and non-cumulative stocks, IPO, secondary market, par value, book value, market value, holding period return, capital gain, dividend yield, payout ratio, retention ratio, EPS, P/E ratio, return on equity, valuation of stocks: Dividend Discount Model, Gordon growth model, present value of growth opportunities.
- Portfolio theory and diversificationMeasuring risk: variance and standard deviation of returns, covariance and correlation, portfolio expected return, portfolio variance, idiosyncratic (nonsystematic) and market (systematic) risk, diversification, market beta, Sharpe ratio, Treynor ratio.
- Asset pricing models: the CAPMMarkowitz portfolio theory, mean-variance analysis, efficient frontier, two-fund separation theorem, the market portfolio, the Capital Asset Pricing Model (CAPM), capital market line, security market line, criticism of the CAPM.
- Asset pricing models: the APTMultifactor models, factor betas, replicating portfolios, factor replicating portfolios, the Arbitrage Pricing Theory (APT).
- Empirical multifactor modelsSize and value premiums, the 3-factor Fama-French model, momentum strategies, the Carhart 4-factor model, liquidity risk factor, volatility risk factor, downside risk factor, two-beta CAPM, local and global multifactor models, the 5-factor Fama-French model.
- Options and option pricingTypes of options, option pricing, option premium, replication of options, the one-period binomial model, the multi-period binomial model, the risk-neutral pricing, the Black-Scholes formula, the put-call parity, hedging by options, portfolios of options.
- Types of information in financial marketsNotion of market efficiency, strong, semi-strong and weak form efficiency, implications of the Efficient Markets Hypothesis: technical and fundamental analysis, tests of market efficiency, no-arbitrage principle.
- Asset-pricing anomaliesMood and asset pricing: weather effect, seasonality, holidays, geomagnetic storms, lunar phases, sport competitions and games, terrorist attacks.
- Arbitrage strategiesMultifactor models, factor betas, replicating portfolios, factor replicating portfolios, the Arbitrage Pricing Theory (APT).
- Participation in classes (6%)
- quizzes (6%)
- home assignments (8%)
- mid-term test (25%)There is no re-take for the mid-term test and quizzes. If a student misses a quiz or the mid-term test due to illness, the final grade is determined as follows: Final grade = Cumulative grade/(1-ωi/2), where ωi is the weight of test i.
- final test (55%)If a student misses the final test due to an illness, it must be written during the re-take period, and the final grade will be determined according to the formula above. If a student’s final grade is below the pass bar, the re-take procedure follows the HSE rules.
- Interim assessment (2 module)0.55 * final test (55%) + 0.08 * home assignments (8%) + 0.25 * mid-term test (25%) + 0.06 * Participation in classes (6%) + 0.06 * quizzes (6%)
- Alec N. Kercheval. (2012). Financial Economics: A Concise Introduction to Classical and Behavioral Finance, by T. Hens and M. O. Rieger. Quantitative Finance, (10), 1487. https://doi.org/10.1080/14697688.2012.695085
- Cuthbertson, K., & Nitzsche, D. (2004). Quantitative Financial Economics : Stocks, Bonds and Foreign Exchange (Vol. 2nd ed). Chichester, England: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=130854
- Rita Biswas, & Michael Michaelides. (2019). Essays in Financial Economics. Bingley: Emerald Publishing Limited. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2181120
- Hens, T. Financial Economics: A Concise Introduction to Classical and Behavioral Finance / Thorsten Hens, Marc Oliver Rieger. – 2nd ed. – Berlin: Springer-Verlag, 2016. – (Springer Texts in Business and Economics). - Текст: электронный // DB Springer Books [сайт]. – URL: https://link.springer.com/book/10.1007/978-3-662-49688-6