The Economics of Financial Markets presents a concise overview of capital markets, suitable for advanced undergraduates and for beginning graduate students in financial economics. Following a brief overview of financial markets--their microstructure and the randomness of stock market prices--this textbook explores how the economics of uncertainty can be applied to financial decision-making. Emphasis is placed on the economic principles underlying all financial markets, focusing on markets for equities, bonds, futures and options contracts.
Contents
Preface; 1. Asset markets and asset prices; 2. Asset market microstructure; 3. Predictability of prices and market efficiency; 4. Decision making under uncertainty; 5. Portfolio selection: the mean-variance model; 6. The capital asset pricing model, CAPM; 7. Arbitrage; 8. Factor models and arbitrage pricing theory, APT; 9. Empirical appraisal of the CAPM; 10. Present value relationships and price variability; 11. Intertemporal choice and equity premium puzzle; 12. Bond markets and fixed-interest securities; 13. Term structure and interest rates; 14. Futures markets - fundamentals; 15. Futures markets - speculation and hedging; 16. Futures markets - applications; 17. Swap contracts and swap markets; 18. Options markets: fundamentals; 19. Options markets - price determination; 20. Options markets - applications.
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