Lingnan University
Social Sciences Program
Fall 2011
Course Title
:
Financial Economics
Course Code
:
ECO323
No. of Credits / Term
:
3
Lecture
Tutorial
Category in Major Prog
Discipline
Prerequisite(s)
:
:
:
:
:
Two hours per week
One hour per week
Elective
Economics
(a) ECO101 Introduction to Economics, or (b) Grade D
or above in AL Economics, or (c) BUS105*
Microeconomics for Business and BUS108 Global
Business Environment)
Instructor: Dr. Liangliang (LeAnne) Jiang
Office: SO 203/1; Phone: 2616-7040; Email: liangliangjiang@ln.edu.hk
Course Description:
The purpose of this course is to provide a rigorous, hands-on introduction to the science
(some would say art) of investing in marketable securities in global financial markets. It
begins by discussing the contemporary investment environment including institutional
aspects, and market efficiency. The course then moves on to modern investment processes,
including in-depth discussion of asset valuation, portfolio theory and applications, portfolio
performance measurement, and the use of derivatives.
Aims:
The objective of the course is to present both theoretical issues and material of practical
value in financial economics and to develop students’ analytical skills and economic sense
of the financial markets through lectures, problem assignments, group presentation, reading
assignments and discussions.
Learning Outcomes:
On completion of this class, students should have a solid understanding of
L1. How financial markets function;
L2. Conflict of interests and agency problems in financial markets and institutions;
L3. Decision making under uncertainty;
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L4. Trade-off between risk and return and the construction of optimal portfolio; and
L5. Important theories in financial economics.
The students are also expected to be able to apply and evaluate
L6. Different models and strategies of financial theories that applied in your expected
major or field (or topic of your choice).
Teaching Method:
Lectures, tutorial discussions and presentations.
Indicative Content:
1. Financial Market, Instruments and Institutions
2. Derivatives
3. Portfolio Theory
4. Theory (CAPM, APT) and Evidence of Capital Market Equilibrium
5. Equity Valuation Models and Security Analysis
6. Portfolio performance evaluation and management
Measurement of Learning Outcomes:
1. Tutorials (20%) are designed to assess student’s comprehension of lecture and
assigned readings. Students will be working in groups to solve problems taught during
the lecture. Students are also encouraged to discuss the recent trends or events in
financial markets (e.g. financial crisis, fraud, IPOs etc.). Extra points and bonus will be
given to critically raised questions. (L1, L2, L3, L4, L5 and L6)
2. A midterm exam (20%) is designed to assess the students capability to apply financial
concepts provided during the first half of the semester (L1, L2, and L3).
3. A final exam (60%) covering all the taught topics will be provided in the last week of
the semester to assess students’ understanding and applications of financial concepts
introduced in the course. (L1, L2, L3, L4, L5 and L6)
Assessment:
Continuous Assessment: 40%
Tutorial Participation and Discussion: 20%
Midterm Exam: 20%
Final Examination: 60%
Required/Essential Readings:
Bodie Zvi, Kane Alex and Alan J. Marcus, Investments, 8th ed., McGraw-Hill, 2008.
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Recommended/Supplementary Readings:
Arthur J. Keown, John D. Martin, J. William Petty and David F. Scott, JR. Financial
Management, 10th ed., Pearson, 2005.
Attanasio, Orazio, James Banks and Sarah Tanner, 2001, “Asset Holding and Consumption
Volatility”, Journal of Political Economy, Vol.110 (4), pp.771-792.
Bodie, Z, A Kane, and A J Marcus, Investments, 5th ed., Boston: McGraw-Hill, 2005.
Bodie, Z and R C Merton, Finance, New Jersey: Prentice Hall, 2000.
Bodie, Z and R C Merton, and David L. Cleeton, Financial Economics, 2nd ed., 2009.
Brav, Alon, Christopher Geczy and George Constantinides, Asset Pricing with
Heterogeneous Consumers and Limited Participation: Empirical Evidence, NBER
Working Paper No 7406, 2001.
Dixit, A K, Optimization in Economic Theory, Oxford: Oxford University Press, 1990.
Fry, M J, Money, Interest, and Banking in Economic Development, 2nd ed., Baltimore:
Johns Hopkins University Press, 1995.
Hallwood, C. Paul and Ronald MacDonald, International Money and Finance, 3rd ed.,
Oxford: Blackwell Publishers, 2000.
Hirshleifer, J and J G Riley, The Analytics of Uncertainty and Information, Cambridge:
Cambridge University Press, 1992.
Jacobs, Kris, “Incomplete Markets and Security Prices: Do Asset-Pricing Puzzles Result
from Aggregation Problems?” Journal of Finance, Vol.54 (1): 123-63, 1999.
Koch, Timothy W. and S. Scott MacDonald, Bank Management, 7th Edition, 2010
Ma, Yue and S K Tsang, 2002, “Do China and Hong Kong Constitute an Optimum
Currency Area?” Centre for Asian Pacific Studies (CAPS) Working Paper No.130 (14/02),
Hong Kong: Lingnan University, 2002.
Mankiw, Gregory and Stephen Zeldes, “The Consumption of Stockholders and NonStockholder”, Journal of Financial Economics, Vol. 29: 97-112, 1991.
Mishkin, F S, Financial Markets and Institutions, 5th ed., Boston: Addison Wesley, 2006.
Mundell, R.A., “The Theory of Optimum Currency Areas”, American Economic Review,
Vol.51: 657-65, 1961.
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Obstfeld, Maurice and Kenneth Rogoff, Foundations of International Macroeconomics,
New York: MIT Press, 1996.
Zhou, Z, and Yue Ma, (et al), “The Full Convertibility of Renminbi: Sequencing and
Influence”, Hong Kong Institute for Monetary Research Working Paper, No.9/2002.
I highly recommend that you keep up to date with the financial news by reading the Wall
Street Journal, Barron's, or the Financial Times (for a more global perspective). In
addition, the World Wide Web has many sites that provide up-to-date financial
information. A list of some of these sites is attached at the end of this syllabus.
INTERNET ADDRESSES
Stock and Index Quotes
quote.yahoo.com
investor.msn.com
www.nyse.com
Financial Market News
www.cnnfn.com
www.bloomberg.com
www.dbc.com
www.wsj.com
cbs.marketwatch.com
Don’t Miss Your Final Exam!
The final exam will be arranged during the last week of the semester. If you experience an
emergency condition, you will have to inform the instructor and the Program Office no
later than 24 hours after the final exam. Otherwise, the late notices will not be accepted.
Warning:
According to Lingnan University and Social Science Programme policy, plagiarism is
“presentation of another person’s work without proper acknowledgment of the source.”
Plagiarism (unattributed copying) will be heavily penalized and may attract a zero mark
and disciplinary action. With regard to your coursework in particular, you are reminded
that you must note the sources of quotations, data, and general information in the essay.
These sources and references should appear in alphabetical order in your list of references
or bibliography.
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