Financial Markets and Institutions Course, Lecture notes of Financial Management

Download Financial Markets and Institutions Course and more Lecture notes Financial Management in PDF only on Docsity! 1 NBA5430, Financial Markets and Institutions Warren Bailey Spring 2014 Mondays and Wednesdays, 11:55am to 1:10pm This course applies principles of finance to understand modern financial markets. Central themes of the course are the structure of financial markets, the pricing function markets perform, the interaction between financial markets and macroeconomic conditions, and the processes of innovation and regulation in these markets. We will look at the workings of a variety of markets and develop an understanding of the different problems which different types of markets address. We will study the question of market efficiency and the interaction between government policies and financial markets. We will analyze issues in innovation and regulation with basic principles of financial economics. Throughout the course, we will consider the relevance of these issues for practical corporate, portfolio, and public sector decision-makers. The course will include ideas and evidence from academic research along with historical, institutional, and international perspectives. Recent events will be used to illustrate concepts and develop analytic skills. Spreadsheet assignments and a term project requiring data analysis will develop your research skills and illustrate academic concepts. This subject has few clear-cut answers or cookbook solutions. Students should be prepared to confront ambiguity, apply independent thinking, and juggle conflicting concepts and solutions in approaching the course material, lecture style, term project, and exams. Course Materials: Course Packet (required). Other materials to be distributed online or in class List of Topics and Readings (approximate lecture number on calendar): I. Introduction to Financial Markets II. Financial Market Structures A. "Irrelevance" and financial theory Cornell and Shapiro, 1987, “Corporate Stakeholders and Corporate Finance,” Financial Management 16, p. 5-14. (2) B. Workings of selected markets Schaede, 1989, "Forwards and Futures in Tokugawa-Period Japan", Journal of Banking and Finance 13, p. 487-513. (3) 2 Blume and Siegel, 1992, "Appendix: The Structure of World Equity Markets" in Financial Markets, Institutions, and Instruments 1, p. 43-50. (3) Stock Exchange of Thailand, 1997, "The Stock Exchange of Thailand Trading System Manual", p. 1-12. (4) C. Illustrations and Evidence James and Wier, 1988, “Are Bank Loans Different? Some Evidence from the Stock Market,” Journal of Applied Corporate Finance 1, p. 46-54. (5) James and Smith, 2000, “Are Banks Still Special? New Evidence on their Role in the Corporate Capital Raising Process”, Journal of Applied Corporate Finance 13, p. 52-63. (6) Rajan, 1996, “Why Banks have a Future: Toward a New Theory of Commercial Banking”, Journal of Applied Corporate Finance 9, p. 114-128. (6) Buckley, 1997, “The Canadian Keiretsu”, Journal of Applied Corporate Finance 9, p. 46- 56. (6) Koh and Walter, 1989, “A Direct Test of Rock’s Model of the Underpricing of Unseasoned Issues,” Journal of Financial Economics 23, p. 251-72. (7) III. Pricing of Risky Assets in Financial Markets A. The time value of money: theories of the term structure of interest rates, determination of corporate and municipal bond yields B. Valuing equities: basic issues, the equilibrium risk/return trade-off C. Market efficiency: theories and illustrations Buell, Stephen, 1992, "The Accuracy of the Initial Pricing of Junk Bonds", Journal of Fixed Income 2, p. 77-83. (16) Leroy, 1990, “Capital Market Efficiency: An Update,” FRBSF Economic Review (Spring) p. 157-168. (16) Brown, Harlow, and Tinic, 1989, “How Rational Investors Deal with Uncertainty,” Journal of Applied Corporate Finance 2, p. 45-58. (17) Lee, Shleifer, and Thaler, 1990, “Closed End Mutual Funds,” Journal of Economic Perspectives 4, p. 153-64. (17) 5 5. Copies of old second exams are not supplied. 6. Graded second exams will not be returned but can be viewed at my office at the end of the semester. 7. There will be no specially scheduled exams, make-up exams, or other special exam arrangements under any circumstances except when mandated by Johnson School or University rules. Group Project: Students will form groups to complete, submit, and present a course project. You must belong to a group in the section you are registered for. Each group will submit a provisional hardcopy of the paper (that is, your detailed slide show) and deliver an in-class presentation on either Monday 5th May 2014 or Wednesday 7th May 2014 as I will subsequently assign. The failure to deliver a hard copy paper and give a presentation as assigned will lead to zero points for this part of the class. Each group may also submit a hardcopy of a revision of the detailed slide show (based on comments made during the presentation) up to noon on Wednesday 14th May 2014. Attendance and participation in both days of presentations is mandatory and forms part of each student’s grade. Peer evaluation by your group members may form a part of each student’s grade on the project as well. A handout detailing requirements, grading, and other aspects of the group project will be supplied. Professional Behavior: Disruptions to the learning environment in class will be judged by the instructor, and final grades will be adjusted accordingly. Disruptive activities include but are not limited to: the use of laptop computers, tablet computers, smart phones, and cell phones; ringing phones; private conversations that do not cease when class begins; private conversations initiated once class is underway. Cheating and other violations of academic integrity will be addressed in the final letter grade and with formal administrative proceedings as mandated by Johnson School and other Cornell regulations. Name cards should be brought to every class and displayed. Final Letter Grades: A rough guide to how final grades will be determined is as follows: first exam 30%, group project 30%, second exam 30%, and homework 10%. The instructor reserves the right to determine the final letter grade assigned to each student. There is no pass/fail grading option or auditing option for this class. GPA in Electives: Grades in Johnson School elective courses are expected to average around 3.5. There will be some variation, of course, and some small courses may be significantly different. Warnings: This class is intended for Johnson School students and also admits limited numbers of graduate 6 students from other business and economics programs. All questions or requests regarding course enrollment must be directed to the Johnson School registrar’s office. I do not monitor or participate in the registration process in any way. I do not sign “add” or “drop” slips. If you register for this class, you agree to accept all course requirements, deadlines, exam dates, and other procedures outlined in this syllabus, in the group project description handout, and in class discussions. There will be no discussions, pleas, or arguments about the administration of the course under any circumstances. All students must adhere strictly to the Johnson School Honor Code and other university rules and regulations regarding academic integrity. 7 Calendar Classnotes From To Classnotes From To Homework Class Date Topic Syllabus Number page: page: Topic Syllabus Number page: page: Due 1 22-Jan Introduction I 1 end 2 27-Jan INST IIA II 1 end INST IIA III 1 3 3 29-Jan INST IIA III 3 5 INST IIB IV 1 5 4 3-Feb INST IIB IV 6 end 5 5-Feb INST IIC V 1 4 SP500 6 10-Feb INST IIC V 5 21 7 12-Feb INST IIC V 22 end 8 19-Feb PRICE IIIA VI 1 9 9 24-Feb PRICE IIIA VI 9 end PRICE IIIA VII 1 8 10 26-Feb PRICE IIIA VII 8 12 TBILL_TZERO 11 3-Mar PRICE IIIA VII 12 end 12 5-Mar PRICE IIIA VIII 1 end 13 10-Mar PRICE IIIB IX 1 end FUND 14 12-Mar Exam #1 15 17-Mar PRICE IIIC X 1 12 16 19-Mar PRICE IIIC X 13 end PRICE IIIC XI 1 9 17 24-Mar PRICE IIIC XI 9 end TECH 18 26-Mar PRICE IIIC XII 1 end 19 7-Apr MONEY IVA XIII 1 end 20 9-Apr MONEY IVA XIV 1 4 21 14-Apr MONEY IVA XIV 5 end MONEY IVA XV 1 2 22 16-Apr MONEY IVA XV 2 end MONEY IVB XVI 1 1 23 21-Apr MONEY IVB XVI 2 end MONEY IVB XVIII 1 end 24 23-Apr MONEY IVB XIX 1 end USA_Taiwan 25 28-Apr CRISIS VB XXIII 1 end CRISIS VB XX 1 end 26 30-Apr Exam #2 27 5-May groups 28 7-May groups