Financial Economics and Risk Economics

Recommended Prerequisites

Courses units: Financial Products and Markets.

Basic knowledge of mathematics and statistics for economics.

Teaching Methods

Theoretical-practical sessions using expositive methods, with audiovisual techniques, where basic concepts are presented and discussed and examples from the real markets are presented. Problem solving and practical exercises will also be performed. Students are
encouraged to solve problems and exercises as independently as possible. These sessions are complemented with periods of individual tutoring for clarification of doubts.

Learning Outcomes

This curricular unit is characterised as a medium level course on financial assets. It includes a critical discussion of the efficient markets theory, an overview of quantitative methods in finance, considers risk aversion in the context of utility theory, examines portfolio analysis,
multi-factor asset pricing models, covers bond analysis and investment strategies, and introduces some approaches to investment decisions. The emphasis is on a thorough coverage of modern finance theory as applied to investment analysis.
On successful completion of this course, students will be able to:
(1) Apply utility theory to describe and analyze investment decisions under risk aversion.
(2) Describe and apply modern portfolio theory in practice.
(3) Describe and criticize the efficient markets hypothesis and behavioural finance theory.
(4) Apply different methodologies to create and manage stock and bond portfolios.

Work Placement(s)

No

Syllabus

1. The fundamental principles of the financial decision.
2. Utility theory and attitudes to risk
3. Market microstructure and high frequency data
4. Portfolio analysis: theory and practice
5. The equilibrium in capital markets
6. Bond portfolio management.

Head Lecturer(s)

Fátima Teresa Castelo Assunção Sol Murta

Assessment Methods

Assessment
Frequency: 50.0%
Exam: 50.0%

Bibliography

Elton, E. J., Gruber, M. J., Brown, S. J. and Goetzmann, W. N. Modern Portfolio Theory and Investment Analysis. 9th ed., Wiley, 2014.
Bodie, Z., Kane, A. and Marcus, A. Investments. 12th ed., McGraw-Hill, 2021.
Hautsch, N. Econometrics of Financial High-Frequency Data. Springer, Berlin, 2012.
Schmidt, A. B. An Introduction to Market Microstructure and Trading Strategies, Whiley, 2011