Please read our student and staff community guidance on COVID-19
Skip to main content Skip to navigation

EC988: The Economics of Financial Markets

18 CATS - Department of Economics

Principal Aims

The aim of the module is to provide students with a thorough understanding of how the prices of financial assets are determined in markets. In particular, how asset prices reflect preferences for time, uncertainty and risk, beliefs, wealth and information held by market participants and how macroeconomic variables affect the return of those assets.

Principal Learning Outcomes

Demonstrate awareness and understanding of key concepts and an understanding of the standard models (CAPM, CCAPM, ICAPM, APT, etc). Students should understand how researchers have tested these models and be able to challenge theories based on the empirical evidence. Students are expected to develop familiarity of the way financial markets operate. They should develop analytical skills in understanding and manipulating complex ideas and problem-solving skills in applying models to real world problems.


The module will typically cover the following topics:

Empirical Regularities; The Basic Pricing Equation; Basic Models with Symmetric Information; Puzzles; Advanced Models with Symmetric Information; Arbitrage Pricing Theory; Models with asymmetric information.


Pre or Co-requisites
Prior knowledge of Microeconomics at the MSc level, in particular a very good understanding of decision making under uncertainty and general equilibrium. In addition, the student should be familiar with constrained optimisation and basic notion of statistics.


Assessment Method
Two-hour written exam in May (100%).
Exam Timing

Exam Rubric

Time Allowed: 2 Hours

Answer TWO questions ONLY. All questions are of equal weight (50 marks each). Answer each question in a separate answer booklet.

Approved pocket calculators are allowed.

Read carefully the instructions on the answer book provided and make sure that the particulars required are entered on each answer book. If you answer more questions than are required and do not indicate which answers should be ignored, we will mark the requisite number of answers in the order in which they appear in the answer book(s): answers beyond that number will not be considered

Previous exam papers can be found in the University’s past papers archive. Please note that previous exam papers may not have operated under the same exam rubric or assessment weightings as those for the current academic year. The content of past papers may also be different.

Reading Lists