University of Alberta Department of Economics
Economics 442-B3
Economics of Financial Markets Winter Term 2021
Instructor: Aslan Behnamian, PhD – Email: [email protected] Classroom: Online via eClass / Zoom
Class Times: TR 15:30 – 16:50 PM
ZOOM LECTURES & OFFICE HOURS
This course will be delivered asynchronously. All lecture videos are already recorded and along with all course materials are posted on eClass. Delivering the course asynchronously will provide flexibility to students to watch the lectures at his/her convenience and to accommodate the difference in the time zone. Students are urged to watch the lecture videos and read the posted lecture notes on the course website (eClass) in advance.
Office Hours: Zoom sessions via eClass during regular class hours will be used for office hours, where I will answer your questions on various topics. You are free to engage with questions through video/audio conversations or chat features on Zoom. I highly encourage you to email me your questions and the practice problems you would like to see solved one day in advance. You could always reach me by email if you cannot attend my office hours or for private concerns.
A BRIEF OVERVIEW OF THE COURSE
This course is intended to provide an introduction to the main types of securities, the structure of securities markets, and pricing relationships in securities markets. We will examine institutional features, theoretical pricing relationships, as well as elementary trading strategies in fixed-income, equity, options, forwards/futures, swap, and repo markets. The course presumes a basic understanding of algebra, calculus, and statistics.
ASSESSMENT
Assessment will be based on two midterm examinations and a final examination. The midterms are each worth 25 percent and the final exam is worth 50 percent of your final grade. The final exam covers all the material in the course. Each midterm covers the material since the previous midterm (i.e., it is not cumulative). The two midterm exams will be open on eClass at the scheduled classes on February 22 and on March 25. The final examination will be two hours and tentatively is scheduled for 9:00 AM on Wednesday April 21; to be confirmed. The exams will be a combination of multiple choices and written essay questions, a combination of both theory and applications. The exams are timed and will be open for a certain and limited time (e.g., for 24 hours) to provide flexibility and accommodate students at different time zones.
Under normal circumstances, students are allowed to bring a single page formula sheet to
exam sessions. During pandemic and these extraordinary times, the exams will be open book.
Midterm I Tuesday, February 22 @ 15:30 PM 25%
Chapter: 1, 2, 3, 4, 5, 13
Midterm II Thursday, March 25 @ 15:30 PM 25%
Chapter: 21, 22, 23
Depending on the class, chapter 23 might not be part of the second midterm; or half of chapter 23 might be part of the second midterm.
Final (TBC) Wednesday, April 21 @ 09:00 AM 50%
Cumulative / All Chapters Covered
Potential Bonus Questions/Extra Assignment(s) Up to 10%
JANUARY FEBRUARY
S M T W T F S S M T W T F S
1 2 1 2 3 4 5 6
3 4 5 6 7 8 9 7 8 9 10 11 12 13
Classes begin 10 11 12 13 14 15 16 14 15 16 17 18 19 20 Reading Week 17 18 19 20 21 22 23 21 22 23 24 25 26 27 First Midterm 24 25 26 27 28 29 30 28
31
MARCH APRIL
S M T W T F S S M T W T F S
1 2 3 4 5 6 1 2 3
7 8 9 10 11 12 13 4 5 6 7 8 9 10
14 15 16 17 18 19 20 11 12 13 14 15 16 17 Classes end
Second Midterm 21 22 23 24 25 26 27 18 19 20 21 22 23 24 Tentative Final Exam Date; TBC 28 29 30 31 25 26 27 28 29 30
Past/Present Representative Evaluative Course Material: Last semester’s past midterm exams and final exam questions are available on the course website on eClass.
Also, throughout the course, I will be referring to and recommend sample practice questions and will make them available on eClass. Midterms and final exams will be similar and at the same level.
Exam Layout: The exams will be a combination of multiple choices and written essay questions, a combination of both theory and applications.
Missed Exams: Students that are absent for a midterm exam due to severe illness or domestic affliction shall have the weight of that exam moved to the final examination upon approval of the instructor. Regarding absences from final examinations please see here, and for information on how to apply for a deferred exam please see the document: I Missed My Final Exam, Now What?
Please note in these tumultuous and extraordinary times, I am learning along with you on how best to offer online learning. We will go through this together, and I am fully dedicated to help you and make sure you learn and take the most out of this course. All comments and feedbacks are more than welcome.
GRADING
Two words about the grading system: Grades reflect judgments of student achievement made by your instructor. These judgments are based on a combination of absolute achievement and relative performance in a class.
Grading of term work will be computed on the 100 point scale. Grades will be assigned using a bell curve. I look for gaps between pools of students when I assign letter grades, and thus one or two points would not matter.
Descriptor Letter Grade Point Value Excellent
A+ 4.0
A 4.0
A- 3.7
Good
B+ 3.3
B 3.0
B- 2.7
Satisfactory
C+ 2.3
C 2.0
C- 1.7
Poor
Minimal Pass
D+ 1.3
D 1.0
Failure F 0.0
Scaling of grades: The Faculty of Arts recommends that the class average in each undergraduate course fall in a range around the Faculty historical average grade for that course level, where the width of the range is 0.6 (an approximately two letter grade increment spread; for example from B- to B+). The effective range for each level is:
Class level Historical Average Lower Bound Upper Bound
100 2.78 2.48 3.08
200 2.93 2.63 3.23
300 3.02 2.72 3.32
400 3.28 2.98 3.58
For ECON 442 this means the average should fall in the range 2.98 - 3.58.
TEXTBOOK It is suggested that you acquire the following textbook:
Modern Portfolio Theory and Investment Analysis, 9th Edition, Edwin J. Elton, Martin J.
Gruber, Stephen J. Brown, and William N. Goetzmann (John Wiley). (Note: earlier editions are adequate for this course.) The textbook in print form costs in the neighborhood of $200 on Amazon.ca, but an e-book version can be purchased for around $50.
All chapter references below relate to this textbook. PowerPoint slides and lecture notes are uploaded on eClass for each chapter that could be relied upon.
COURSE OUTLINE
A. Institutional Features of Securities Markets Chapters 1-2-3 B. Mean/Variance Portfolio Choice and the CAPM
B-1 Diversification of Risk Chapter 4
B-2 Opportunity Set Chapter 5
B-3 CAPM Chapter 13
C. Fixed-Income Securities
C-1 Bond Price, Yield, and Duration Chapters 21-22 C-2 Callable and Convertible Bonds
C-3 Preferred Shares
D. Options Markets Chapter 23
D-1 Introduction and Market Structure D-2 Dominance Theorems
D-3 Basic Option Strategies D-4 Option Pricing
E. Forwards, Futures, Swaps, and Repos Chapter 24 E-1 Introduction to Futures and Forwards
E-2 Hedging, Insurance, Arbitrage, and Futures and Forwards Prices E-3 Swaps and Repos
If time permits, we will discuss the following topics:
F. Investment in Practice Chapters 25-27
F-1 The Equity Premium
F-2 Patterns in Stock Returns; Security Analysis F-3 Passive versus Active Investment Management
Minimum Computing Requirements: This is an online course so students must have a computer that can run a currently supported version of Windows or MacOS, a webcam,
and a reliable internet connection.
Teaching Philosophy: Different students learn differently. Some need minimal assistance and learn best on their own. Others learn through interaction and engagement. We will use the ZOOM office hour sessions for that purpose.
Respect: Since I embrace diversity, all students are respected regardless of race, colour, ancestry, place of origin, religious beliefs, gender, age, physical disability, mental disability, marital status, family status, source of income, gender expression and sexual orientation.
UNIVERSITY POLICIES
(i) Prerequisite and/or Co-Requisites: Prerequisites: ECON 281, STAT 141 or equivalent, and MATH 113 or SCI 100 or equivalent. Students may not receive credit for both ECON 442 and FIN 412.
Please note that the current University registration system does not accommodate pre- requisite checking.
(ii) Academic Integrity: “The University of Alberta is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these standards regarding academic honesty and to uphold the policies of the University in this respect. Students are particularly urged to familiarize themselves with the provisions of the Code of Student Behaviour (online at www.governance.ualberta.ca) and avoid any behaviour which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can result in suspension or expulsion from the University.”
Because of the seriousness of plagiarism and cheating, students are advised that the Code of Student Behaviour should be reviewed since ignorance is not acceptable as a defense in cases of academic offences. Students should be informed that when cheating and/or plagiarism has been determined to have occurred, a number of sanctions can be imposed, such as lowering a grade or expulsion from the University. All students must read and familiarize themselves with the Code of Student Behavior, found at this link: Code of Student Behavior.
(iii) Course Outlines: Policy about course outlines can be found in §23.4(2) of the University Calendar in the Evaluation Procedures and Grading System section.
(iv) “Audio or video recording, digital or otherwise, of lectures, labs, seminars or any other teaching environment by students is allowed only with the prior written consent of the instructor or as part of an approved accommodation plan. Student or instructor content, digital or otherwise, created and/or used within the context of the course is to be used solely for personal study, and is not to be used or distributed for any other purpose without prior written consent from the content author(s).”