Short description:
This seminar covers domestic financial markets, in particular interest rates and stock markets. Topics include the fundamentals of interest rates, risk premiums for bonds and stocks, the equity premium puzzle, macroeconomic sources of risk, speculative bubbles, and volatility in financial markets. Starting point for our analyses will be the efficient market and rational behaviour of investors. So-called financial market anomalies will also be discussed. Whenever possible we combine financial theory and macroeconomic theory.
I provide these course materials (lecture notes, slides, etc.) because I think they may contain useful information for anyone interested in the particular topics. My teaching has never followed a particular single textbook, but covers a careful selection of materials from various sources (multiple textbooks and academic papers). Sometimes this yields material that is decidedly more difficult than most textbooks would accept, but I think empirically more correct and academically more insightful.
Period 4, March - April 2010
My written lecture notes for students contain the stories I tell and provide some more technical details and references.
These notes provide further technical explanations
* Term structure estimation, LNFEB13040_1ATerm structure estimation.doc
* Interest calculations: interest rates, yields, returns, market conventions, LNFEB13040_1BInterest rates, prices, yields1.doc and LNFEB13040_1BInterest rates, prices, yields2.doc and
* Rational expectations, LNFEB13040_Rational expectations.doc
Empirical Assignments:
1. Working with (Dutch) money market and bond market. Replicate price-yield calculations in Excel and construct yield curves for selected dates.
2. Replication and expansion studies using EViews
* Gerlach and Smets (1997), ‘The term structure of euro-rates: Some evidence in support of the expectations hypothesis'
* Jorion and Mishkin (1991), ‘A multicountry comparison of term-structure forecasts at long horizons'
Data are given to the students in Excel files and correct initial replication results are provided to check on the accuracy of data transformations and EViews programs. Expansion of results to longer sample periods and suggestions for further extensions of the research are up to the students.
Supporting literature
Suggestions for additional information or different presentations
Choudhry, Fabozzi, Mann (2003), Introduction to European Fixed Income Securities and Markets, Chapter 1 in The Handbook of European Fixed Income Securities
http://media.wiley.com/product_data/excerpt/90/04714303/0471430390.pdf
Handbooks in Central Banking no.20 Basic Bond Analysis (2000)
http://www.bankofengland.co.uk/education/ccbs/handbooks/pdf/ccbshb20.pdf
Suite LLC Derivatives Education, Bond Mathematics & Valuation
http://www.suitellc.com/education/Bond%20Mathematics%20%20Valuation_v2.pdf